ROCKY BRANDS
2022 ANNUAL REPORT
CELEBRATING
90 YEARS
Our Lehigh CustomFit business-to-business model, which
provides companies with a superior way to manage their
safety shoe program, experienced double-digit revenue
gains driven by key account growth and
improved
retention and participation rates with existing accounts.
The investments we made in personnel and marketing
are allowing us to reach more potential customers, while
upgrades to the CustomFit digital interface and the
addition of new brands to Lehigh’s offering, have helped
improve user engagement and demand. Our ecommerce
channel, which consists of both our own branded websites
and online marketplaces, enjoyed a fantastic year in 2022
with successes in both channels. At the same time, our
direct-to-consumer channel advanced rapidly this year as
our efforts to evolve our branded e-commerce website
into a larger growth vehicle for the Company delivered one
of the strongest periods of growth in recent history. Our
efforts around new digital advertising aimed at increasing
traffic trends, as well as upgrades to the look, feel and
functionality of our sites to improve the user experience is
fueling higher traffic and conversions. From an operational
standpoint, we enhanced our ability to ship direct to
consumers from our Reno distribution center this year,
allowing us to capture new efficiency gains that will drive
profitability and customer satisfaction.
As expected, our contract manufacturing segment took a
small step backwards in 2022, as we confronted headwinds
from changes in the competitive landscape and some
expiring contracts. Despite these challenges, our teams did
a remarkable job taking advantage of the open capacity at
our company-operated manufacturing facilities to expand
our commercial military business in the U.S. and overseas.
And while we were pleased with our results in 2022, we are
intently focused on investing in the Company and driving
new operational efficiencies. We have now been operating
our manufacturing facilities in Puerto Rico and the Dominican
Republic for over 30 years and have recently added new
manufacturing facilities that were apart of the acquisition
in 2021 in Rock Island IL and Chuzhou China. We view
each of these locations as a strategic asset and important
to our future growth plans. As such, we are implementing
new technologies like automated cutting machines in
Puerto Rico to further increase efficiencies. In the Chuzhou
factory, we increased capacity to accommodate new styles
and constructions while also investing in our Dominican
Republic facility with new direct inject machinery that will
expand on our manufacturing capabilities in the coming
years.
In closing, thanks to the numerous accomplishments and
a team of great people who are passionate about our
business, we continue to advance our strategic initiatives
and are excited about the opportunities in front of us. I
sincerely thank everyone for their support, and I believe
2023 will be another year filled with important progress as
we execute on our plan to generate profitable growth and
increased shareholder value over the long-term.
Sincerely,
Jason Brooks
Chairman, President and Chief Executive Officer
DEAR SHAREHOLDERS:
including a more cautious,
As I reflect on the past year, I am very pleased with the
success we achieved in 2022, despite it being one of
the most challenging operating environments of my
career. Throughout the year, our industry faced a number
of challenges
inflation-
weary consumer and an increasingly promotional retail
environment driven by increasing inventory positions as the
year progressed. I am proud to say that with the support of
the exceptional people at Rocky Brands, we preserved and
delivered solid financial results while also investing in our
brands and channels to build an even stronger business for
the future.
To start the year, our passionate and talented people came
together to complete the combination of two companies
and six powerful brands. Our efforts over the past two
years were finally recognized in 2022 as our new, combined
organization built a solid foundation for growth led by
thousands of dedicated employees. I witnessed firsthand
the incredible efforts put forth by our teams as they
continued to execute on the growth and profit improvement
strategies, implemented over the past 24 months aimed
at generating increased shareholder value. With the
personnel we have in place, combined with our portfolio of
authentic brands and diversified distribution platform, I am
confident that we are well positioned to build on our recent
accomplishments and drive improved results in the years
ahead. 2022 was also a year in which we advanced a new
vision for the combined organization through our long-term
strategic initiatives. As our leadership team constructed the
current plan for our business, we focused on four key areas;
operational excellence, organic top line growth, preparing
for the future and our corporate values. By refocusing our
efforts on each on these fronts, we believe we are putting
the pieces in place to expand our top-line, and more
importantly, enhance our margins to grow profitability at a
faster pace in the years ahead.
Our brands, categories and channels weathered the
operating environment admirably this year. For wholesale,
the largest segment of our business, the introduction
of several innovative new products across our major
wholesale categories; work, outdoor, western, hunting, and
commercial military, were received very well and helped
drive new orders even as inventory levels rose for some
of our major wholesale partners. Throughout the year, we
continued to invest in social and digital campaigns, helping
drive increased awareness and demand for our brands and
products, and strengthen our connection with consumers. In
addition, as part of our increased retailer support program,
we upgraded our point-of-sale materials to better educate
our target audience on the features and benefits of our
footwear collections. The result of these combined efforts
was one of the strongest years for our wholesale segment
in some time, highlighted by strong full price selling which
led to solid gains for our Muck, Rocky, XTRATUF, Georgia
Boot, and Durango brands.
2 ROCKY BRANDS ANNUAL REPORT 2022
1932
Founded in 1932 by brothers William (Bill)
and F.M. (Mike) Brooks. The pair had lost their
jobs in Columbus during the Great Depression.
They moved to Nelsonville with their families in
order to find work.
They started with 50 employees making 300
pairs per day of Goodyear welt shoes for men
and boys. The William Brooks Shoe Company
was incorporated in August 1932.
ROCKY BRANDS ANNUAL REPORT 2022 3
FINANCIAL HIGHLIGHTS
INCOME STATEMENT DATA
($000, except per share data)
2018
2019
2020
2021
2022
Net sales
Gross margin
Income from Operations
$252,694
$270,408
$277,309
$514,227
$611,906
34.4%
35.9%
7.1%
7.9%
38.5%
10.8%
38.5%
10.0%
36.6%
7.9%
Net income
$13,992
$16,883
$23,069
$32,513
$24,073
Net income per diluted share
$1.88
$2.27
$3.14
$4.39
$3.27
BALANCE SHEET
Inventories
Total assets
Total debt
$72,822
$76,731
$77,576
$232,464
$235,400
178,939
205,826
229,091
624,575
582,390
-
-
-
270,044
256,896
Shareholders’ equity
151,575
164,656
179,505
197,855
215,473
$611.9
$514.2
$4.39
$3.14
$3.27
$2.27
$1.88
$252.7
$270.4
$277.3
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
Net Sales ($millions)
Net Income Per Diluted Share
7.1%
7.9%
10.8%
10.0%
7.9%
$270.0
$256.9
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
$-
$-
$-
Income from operations as a % of net sales
Total Debt ($millions)
Adjusted Diluted EPS for 2022 includes approximately $4.5 million dollars related to the disposition of assets corresponding with the divestiture of the Neos brand,
restructuring costs and adjustments related to the acquisition of the performance and lifestyle footwear business of Honeywell International, Inc. 2021 includes
approximately $15.4 million dollars in adjustments related to the acquisition mentioned above. 2020 includes approximately $2.7 million dollars in manufacturing expenses
related to the COVID-19 facility closures and the acquisition mentioned above.
4
ROCKY BRANDS ANNUAL REPORT 2022
FINANCIAL HIGHLIGHTS
2004 Rocky purchases E. J. Footwear with the
established brands of Georgia Boot, Durango, Lehigh, plus
licenses for Dickies and John Deere, doubling the size of the
business.
2021 Rocky Brands Inc. purchased the Honeywell Footwear
Group, including the well-known footwear brands Muck,
XtraTuf, Servus, Neos, and Ranger. The acquisition also added
500 employees, two factories and another Distribution Center.
FINANCIAL HIGHLIGHTS
ROCKY BRANDS ANNUAL REPORT 2022
5
We are here to serve those who serve. Rocky makes
rugged, reliable boots for the hard-working men and
women who depend on us. We serve the farmer, the
hunter – those protecting our communities, and serving
our country.
6
ROCKY BRANDS ANNUAL REPORT 2022
ROCKY
Georgia Boot empowers those who work hard–
the workers that pride themselves in building real
value with their hands. We help them achieve
personal success by creating performance-
enhancing footwear designed for the physical
demands of their specific trades.
GEORGIA BOOT
ROCKY BRANDS ANNUAL REPORT 2022
7
Lightweight, tough, and unbelievable comfortable,
Durango® boots are designed for your western life.
Whether you’re riding and roping; on the job or out on
the town, Durango® boots are made for what you do.
This is Durango® Country.
8
ROCKY BRANDS ANNUAL REPORT 2022
DURANGO
made
for what
you do
WWW.DURANGOBOOTS.COM
Styles Shown: DCRD145, DRD0451, DRD0208
Celebrating 100 years of safety and innovation,
Lehigh CustomFit continues to be the leader
in managed programs for safety footwear and
wellness protection. Our data-driven accurate
fit technology gives us an exceptionally low
return rate and a customer solution to buying
an even better fit online than in store.
LEHIGH
ROCKY BRANDS ANNUAL REPORT 2022
9
Muck is dedicated to delivering boots and
footwear that are 100% MUCKPROOF: remarkably
protective, exceptionally comfortable, totally
waterproof, and designed to brave every element
for work (and life) in the Muck.
10
ROCKY BRANDS ANNUAL REPORT 2022
MUCK
XTRATUF is built for the worst, so you
perform your best. Keeps you upright, safe
and moving forward in places where you feel
most alive. Alaska Proven. Built For All.
MADE
FOR
DO-ERS
NOT ALL FISHING BOOTS ARE CREATED EQUAL.
The Wheelhouse is the commercial grade version of our Ankle Deck Boot.
Standing for 12+ hours a day while at sea can cause feet to swell, so we built
the Wheelhouse with a wider fit. Comfort and protection are key, so this
boot features an EVA/PU blend insole, an SRC-rated outsole for industry
leading slip resistance and extra reinforcements throughout.
XTRATUF.COM
XTRATUF is a registered trademark of Rocky Brands, Inc. © 2022
WHEELHOUSE
A variety of colorways
are now available for
men and women.
NEW
ON
DECK
ALASKA PROVEN. BUILT FOR ALL.
The Ankle Deck Boot collection is evolving. The ADB Sport is 30%
lighter than the original ADB. It is built with a new high-performance
foam that is ultra-durable and slip-resistant. This new non-marking
Chevron outsole is SRC-rated and delivers the comfort and agility
of a sneaker with long cushion life and high energy return.
XTRATUF.COM
XTRATUF is a registered trademark of Rocky Brands, Inc. © 2023
ADB SPORT
Additional colors
available for both
men and women.
LEGACY NXT AN ICON, REIMAGINED.
Our iconic Legacy boot has been around since the late 50’s and our users
are now wearing them in more environments and for more reasons than
ever before. The NEW Legacy NXT is 100% waterproof and features a brand
new, form fitting last with expanded room in the calf and ankle, designed to
fit our modern-day commercial fisherman for all day comfort.
XTRATUF.COM
Rocky Brands, Inc. © 2021
Reinforced ankle and heel for
added protection and durability
XTRATUF
ROCKY BRANDS ANNUAL REPORT 2022
11
OUR GROWING LEGACY Quality PVC footwear that protects workers
and enables them to get the job done right.
Built for cold and wet weather, Ranger has a rich
American heritage of work and outdoor footwear
built for whatever nature throws your way
12
ROCKY BRANDS ANNUAL REPORT 2022
SERVUS RANGER
FAMILY OF
BRANDS
ROCKY BRANDS ANNUAL REPORT 2022 13
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-34382
ROCKY BRANDS, INC.
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
No. 31-1364046
(I.R.S. Employer Identification No.)
39 East Canal Street, Nelsonville, Ohio 45764
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (740) 753-1951
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common Stock – No Par Value
Trading symbol
RCKY
Name of exchange on which registered
NASDAQ
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to the filing requirements for at least the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company,"
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer
☐ Smaller reporting company ☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $233,451,724 on June
30, 2022.
There were 7,346,250 shares of the registrant's Common Stock outstanding on February 28, 2023.
Portions of the registrant's Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business .........................................................................................................................................................
Risk Factors ...................................................................................................................................................
Unresolved Staff Comments ..........................................................................................................................
Properties .......................................................................................................................................................
Legal Proceedings ..........................................................................................................................................
Mine Safety Disclosures ................................................................................................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ........................................................................................................................................................
Reserved ........................................................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations .........................
Quantitative and Qualitative Disclosures About Market Risk .......................................................................
Financial Statements and Supplementary Data ..............................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................
Controls and Procedures ................................................................................................................................
Other Information ..........................................................................................................................................
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections ..........................................................
PART III
Directors, Executive Officers and Corporate Governance .............................................................................
Executive Compensation ...............................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ......
Certain Relationships and Related Transactions, and Director Independence ...............................................
Principal Accounting Fees and Services ........................................................................................................
PART IV
Page
2
9
20
20
21
21
22
22
23
29
30
58
58
60
60
60
60
60
60
60
Exhibits and Financial Statement Schedules ..................................................................................................
Item 15.
Item 16.
Form 10-K Summary .....................................................................................................................................
SIGNATURES ......................................................................................................................................................................
Appendix A: Financial Statement Schedule ..................................................................................................
61
64
65
66
1
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "anticipate," "believe,"
"expect," "estimate," and "project" and similar words and expressions identify forward-looking statements which speak only as
of the date hereof. Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to
differ materially from historical or anticipated results due to many factors, including, but not limited to, the factors discussed in
"Item 1A, Risk Factors." The Company undertakes no obligation to publicly update or revise any forward-looking statements.
ITEM 1. BUSINESS.
PART I
All references to "we," "us," "our," "Rocky Brands," or the "Company" in this Annual Report on Form 10-K mean Rocky Brands,
Inc. and our subsidiaries.
We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of
well recognized brand names including Rocky, Georgia Boot, Durango, Lehigh, The Original Muck Boot Company ("Muck"),
XTRATUF, Servus, Ranger and the licensed brand Michelin. Our brands have a long history of representing high quality,
comfortable, functional, and durable footwear and our products are organized around six target markets: outdoor, work, duty,
commercial military, military, and western. Our footwear products incorporate varying features and are positioned across a range
of suggested retail price points from $26.00 for our value priced products to $520.00 for our premium products. In addition, as
part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel and accessories that
we believe leverage the strength and positioning of each of our brands.
On January 24, 2021, we entered into a Purchase Agreement (the "Purchase Agreement") with certain subsidiaries of Honeywell
International Inc. (collectively, "Honeywell"), to purchase Honeywell's performance and lifestyle footwear business, including
brand names, trademarks, assets and liabilities associated with Honeywell's performance and lifestyle footwear business (the
"Acquisition").
On March 15, 2021 (the "Acquisition Date"), pursuant to the terms and conditions set forth in the Purchase Agreement, we
completed the Acquisition for an aggregate preliminary closing price of approximately $207 million, net of cash acquired, based
on preliminary working capital and other adjustments. Upon a final agreement of net working capital as of the Acquisition Date,
we owed Honeywell an additional $5.4 million. The Acquisition was funded through cash on hand and borrowings under two
new credit facilities. See Note 9 of our Consolidated Financial Statements of the Consolidated Financial Statements
for information regarding the two new credit facilities.
The Acquisition expanded our brand portfolio to include Muck, XTRATUF, Servus, Ranger, and NEOS brands (the "Acquired
Brands"). We acquired 100% of the voting interests of certain subsidiaries and additional assets comprising the performance and
lifestyle footwear business of Honeywell with the Acquisition. See Note 3 of the Consolidated Financial Statements for more
information regarding the Acquisition. On September 30, 2022, we completed the sale of the NEOS brand and related assets. See
Note 4 of our Consolidated Financial Statements for additional information.
We report our segment information in accordance with provisions of the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 280, Segment Reporting. We evaluate business performance based upon
several metrics, using segment profit as the primary financial measure. During the three months ended June 30, 2021, we changed
our reporting segments when compared to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The
change included renaming our Military reporting segment to "Contract Manufacturing" and changing the composition thereof to
continue to include sales to the U.S. military ("Military Contracts") and to include sales under manufacturing contracts for private
label ("Private Contracts"). Previously, only Military Contracts were included in this segment. The Private Contract sales have
characteristics more like Military Contracts, with similar sales, delivery processes and gross margins. This segment reporting
change reflects a corresponding change in how our Chief Executive Officer and our Chief Financial Officer, our chief operating
decision makers ("CODMs"), review financial information in order to allocate resources and assess performance. Previously,
Private Contracts were included in the Wholesale segment, but with the Acquisition, our Wholesale segment has substantially
increased in size and our CODMs determined that the change in segment reporting was appropriate at that time to mirror how
they evaluate and manage the business.
Each of our reporting segments continue to employ consistent accounting policies. In our Wholesale business, we distribute our
products through a wide range of distribution channels representing over 10,000 retail store locations in the U.S. and Canada as
well as in several international markets. Our Wholesale channels vary by product line and include sporting goods stores, outdoor
retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety
2
stores, specialty retailers and online retailers. Our Retail business includes direct sales of our products to consumers through our
business-to-business web platform, e-commerce websites, third party marketplaces and our Outdoor Gear Store. Contract
Manufacturing includes sales to the U.S. military, private label sales and any sales to customers in which we are contracted to
manufacture or source a specific footwear product for a customer. See Note 18 of our Consolidated Financial Statements for
further information.
Competitive Strengths
Our competitive strengths include:
● Strong portfolio of brands. We believe the Rocky, Georgia Boot, Durango, Lehigh, Muck, XTRATUF, Servus, Ranger
and Michelin brands are well recognized and established names that have a reputation for performance, quality and
comfort in the markets they serve: outdoor, work, western, duty, commercial military and military. We plan to continue
strengthening these brands through product innovation in existing footwear markets, by extending certain of these
brands into our other target markets and by introducing complementary apparel and accessories under our own brands.
● Commitment to product innovation. We believe a critical component of our success in the marketplace has been a result
of our continued commitment to product innovation. Our consumers demand high quality, durable products that
incorporate the highest level of comfort and the most advanced technical features and designs. We have a dedicated
group of product design and development professionals, including well recognized experts in the footwear and apparel
industries, who continually interact with consumers to better understand their needs and are committed to ensuring our
products reflect the most advanced designs, features and materials available in the marketplace.
● Long-term retailer relationships. We believe that our long history of designing, manufacturing and marketing premium
quality, branded footwear has enabled us to develop strong relationships with our retailers in each of our distribution
channels. We reinforce these relationships by continuing to offer innovative footwear products, by continuing to meet
the individual needs of each of our retailers and by working with our retailers to improve the visual merchandising of
our products in their stores. We believe that strengthening our relationships with retailers will allow us to increase our
presence through additional store locations and expanded shelf space, improve our market position in a consolidating
retail environment and enable us to better understand and meet the evolving needs of both our retailers and consumers.
● Diverse product sourcing and manufacturing capabilities. We believe our strategy of utilizing both company operated
and third-party facilities for the sourcing of our products offers several advantages. Operating our own facilities
significantly improves our knowledge of the entire production process, which allows us to more efficiently source
product from third parties that is of the highest quality and at the lowest cost available. We intend to continue to source
a higher proportion of our products from third-party manufacturers, which we believe will enable us to obtain high
quality products at lower costs per unit.
Growth Strategy
We intend to increase our sales through the following strategies:
● Expand into new target markets under existing brands. We believe there is significant opportunity to extend certain of
our brands into our other target markets. We intend to continue to introduce products across varying feature sets and
price points in order to meet the needs of our customers.
● Cross-sell our brands to our retailers. We believe that many retailers of our brands target consumers with similar
characteristics and, as a result, we believe there is significant opportunity to offer each of our retailers a broader
assortment of footwear and apparel that target multiple markets and span a range of feature sets and price points.
● Expand business internationally. We intend to extend certain of our brands into international markets. We believe this
is a significant opportunity because of the long history and authentic heritage of these brands. We intend on growing
our business internationally through a network of distributors.
● Grow our e-commerce business. We intend to drive business to our branded e-commerce websites as well as third party
marketplace platforms. We believe there is an opportunity to capitalize on the changes in the market to online shopping
as we focus advertising efforts and maximize our distribution capabilities.
3
●
Increases in our Lehigh business. We believe that our business-to-business CustomFit platform has ample opportunity
to grow as we continue to pursue large manufacturers, distributors, and other companies who are reliant on safety
footwear programs. We feel that diversifying our product lines and continuing to provide an easy, no hassle approach
to purchasing will allow us to expand within the market.
● Acquire or develop new brands. We intend to continue to acquire or develop new brands that are complementary to our
portfolio and could leverage our operational infrastructure and distribution network. In March 2021, we were able to
execute this strategy through the Acquisition.
Product Lines
Our product lines consist of high-quality products that target the following markets:
● Work. Our work product lines consist of footwear and apparel marketed to industrial and construction workers, as well
as workers in the hospitality industry, such as restaurants or hotels and those who partake in farm and ranch work. All
of our work products are specially designed to be comfortable, incorporate safety features for specific work
environments or tasks and meet applicable federal and other standards for safety. This category includes products such
as safety toe footwear for industrial and construction workers and non-slip footwear for hospitality workers.
● Western. Our western product line currently consists of authentic footwear products marketed to farmers and ranchers
who generally live in rural communities in North America.
● Commercial Military. Our commercial military product line consists of footwear products marketed to military
personnel as a substitute for the government issued military boots. Our commercial military boots are designed to be
comfortable, lightweight, and durable and are marketed under the Rocky brand name.
● Outdoor. Our outdoor product lines consist of footwear, apparel and accessory items marketed to outdoor enthusiasts
who spend time actively engaged in activities such as hunting, fishing, camping and hiking. Our consumers demand
high quality, durable products that incorporate the highest level of comfort and the most advanced technical features,
and we are committed to ensuring our products reflect the most advanced designs, features and materials available in
the marketplace. Our outdoor product lines consist of all-season sport/hunting and fishing footwear, apparel and
accessories that are typically waterproof and insulated and are designed to keep outdoor enthusiasts comfortable on
rugged terrain or in extreme weather conditions.
● Duty. Our duty product line consists of footwear products marketed to law enforcement, security personnel and postal
employees who are required to spend a majority of their time at work on their feet. All of our duty footwear styles are
designed to be comfortable, flexible, lightweight, slip resistant and durable. Duty footwear is generally designed to fit
as part of a uniform and typically incorporates stylistic features, such as black leather uppers in addition to the comfort
features that are incorporated in all of our footwear products.
● U.S. Military. Our U.S. military product line consists of footwear products designed specifically for U.S. military
personnel. These footwear products are designed and manufactured to meet rigorous specification requirements, which
include lightweight, durable, waterproof footwear products manufactured in the U.S.A. The U.S. military products are
marketed under the Rocky brand name.
Our products are marketed under nine well-recognized, proprietary brands, Rocky, Georgia Boot, Durango, Lehigh, Muck,
XTRATUF, Ranger and Servus, in addition to the licensed brand Michelin.
Rocky
Rocky, established in 1979, is our premium priced line of branded footwear, apparel and accessories. We currently design Rocky
products for each of our six target markets and offer our products at a range of suggested U.S. retail price points: $38.00 to
$405.00 for our footwear products; and $17.00 to $160.00 for our apparel and accessory lines.
The Rocky brand originally targeted outdoor enthusiasts, particularly hunters, and has since become a market leader in the
hunting boot category. In 2002, we also extended into hunting apparel, including jackets, pants, gloves and caps. Our Rocky
products for hunters and other outdoor enthusiasts are designed for specific weather conditions and the diverse terrains of North
America. These products incorporate a range of technical features and designs such as Gore-Tex waterproof breathable fabric,
3M Thinsulate insulation, nylon Cordura fabric and camouflaged uppers featuring either Venator, Mossy Oak or Realtree
4
patterns. We use rugged outsoles made by industry leaders like Vibram as well as our own proprietary design features to make
the products durable and easy to wear.
We also produce Rocky duty and commercial military footwear targeting law enforcement professionals, military, security
workers, fire industry professionals and postal service employees, and we have established leading market share positions in
these categories.
In 2002, we introduced Rocky work footwear designed for varying weather conditions or difficult terrain, particularly for people
who make their living outdoors such as those in lumber, forestry, and oil & gas occupations. These products typically include
many of the proprietary features and technologies that we incorporate in our hunting and outdoor products.
We have also introduced western influenced work boots for farmers and ranchers. Most of these products are waterproof,
insulated and utilize our proprietary comfort systems. In addition, we have introduced men’s and women’s casual western
footwear for consumers enamored with western influenced fashion.
Georgia Boot
Georgia Boot was launched in 1937 and is our moderately priced, high quality line of work footwear. Georgia Boot footwear is
sold at suggested U.S. retail price points ranging from $76.00 to $292.00. This line of products primarily targets construction
workers and those who work in industrial plants where special safety features are required for hazardous work environments.
Many of our boots incorporate safety toes or metatarsal guards to protect wearers’ feet from heavy objects and non-slip outsoles
to prevent slip related injuries in the workplace. All of our boots are designed to help prevent injury and subsequent work loss
and are designed according to standards determined by the Occupational Safety & Health Administration or other standards
required by employers.
In addition, we market a line of Georgia Boot footwear to brand loyal consumers for farming, ranch work and other outdoor
activities. These products are primarily all leather boots distributed through rural areas that allow us to incorporate other technical
features to provide all day comfort for long days outside.
Durango
Durango Boots was established in 1966 and manufactures premium western footwear for men, women and kids. Over the last 50
years, Durango has earned a reputation for building authentic western boots using exceptional materials and innovative
constructions. Our current line of Durango products is offered at suggested U.S. retail price points ranging from $79.00 to
$480.00. Our brand portfolio categories include work-western, farm and ranch, western-performance, premium exotics, fashion-
forward and casual wear.
Many of our western products are marketed to core western and aspirational western consumers who have an affinity and loyalty
to the western lifestyle. Such products include high-performance technologies that include our patented Dually Shank
System which provides twice the torsion stability and midfoot support and various footbeds that offer flexibility, comfort and
support for immediate gratification.
Lehigh
The Lehigh brand was established in 1922 as a high quality line of occupational safety footwear that later expanded into a full
service program offering. While still manufacturing and selling branded core product, the brand primarily focuses on providing
managed programs to corporations that require and provide a subsidy to their employees to wear safety footwear. Most of the
footwear incorporates a protective toe and can include a metatarsal guard, puncture-resistant plate, slip-resistant outsole and
special materials to combat caustic substances. Lehigh offers an extensive selection of styles to fit any work environment and has
a wide range of customer accounts in the industrial, hospitality and healthcare industries. The Lehigh brand line of safety shoes
has suggested U.S. retail price points ranging from $29.00 to $520.00.
Michelin
Michelin is a premier price point line of work footwear targeting specific industrial professions, primarily indoor professions.
The license to design, develop and manufacture footwear under the Michelin name was secured in 2006. Suggested U.S. retail
prices for the Michelin brand are from $157.00 to $192.00. The license agreement for the Michelin brand expires on December
31, 2025, with the option to renew.
5
The Original Muck Boot Company
The Original Muck Boot Company (Muck) was founded in 1999 and has pioneered the premium rubber and neoprene boot
category by delivering high quality, innovative, weatherproof and comfortable products. Our current line of Muck footwear
products is offered at suggested U.S. retail price points ranging from $55.00 to $270.00. Through widespread consumer validation
in the farm, agriculture, hunt and equestrian segments, Muck has been able to expand to new segments such as outdoor, gardening,
industrial and general work, as well as to new regions such as the U.K., Norway and Germany to reach new consumers who have
adopted the brand and its offerings. Both new and existing consumer groups have welcomed line extensions from the brand as
the total catalog expands beyond its core offering into premium leather and other new footwear categories.
XTRATUF
XTRATUF is a leading outfitter in the commercial, sport and recreational fishing segment, having provided fishermen with
capable, comfortable and reliable footwear for use in the harshest conditions for over 60 years. With roots in Alaska and
continued widespread use by those who live there, the XTRATUF brand has been able to expand to other regions throughout
North America and most recently in the U.K. and Japan. Fueled by the strong growth in the outdoor segment, the brand has been
adopted by non-fishermen seeking quality, functional footwear. Our current line of XTRATUF footwear products is offered at
suggested U.S. retail price points ranging from $45.00 to $245.00.
Servus
Servus boots date back to the 1920s and today the brand is known for its reliable PVC footwear made for wet and hazardous
working conditions. Primarily sold to industrial and work users throughout North America, the Servus brand is a staple in our
portfolio of brands. With a substantial percentage of the line manufactured in our own facility in Rock Island, Illinois and other
North American locations, the brand is positioned to offer great value to end consumers. Our current line of Servus footwear
products is offered at suggested U.S. retail price points ranging from $26.00 to $145.00.
Ranger
Ranger serves two primary user segments: outdoor recreation and industrial/work. Ranger products consist of a focused range
of pac-boots, rubber boots, waders, hip-boots and over-boots that are built for wet and cold weather and provide exceptional
comfort and function at a value price. Our current line of Ranger footwear products is offered at suggested U.S. retail price points
ranging from $66.00 to $100.00.
Sales and Distribution
Our products are distributed through three distinct business segments: Wholesale, Retail and Contract Manufacturing. See Note
18 of our Consolidated Financial Statements for more information regarding our three business segments.
Wholesale
In the U.S., we distribute Rocky, Georgia Boot, Durango, Muck, XTRATUF, Servus, Ranger and Michelin products through a
wide range of wholesale distribution channels. As of December 31, 2022, our products were offered for sale at over 10,000 retail
locations in the U.S. and Canada.
Through our dedicated in-house sales team we sell to wholesale accounts in the U.S. through the use of a dedicated in-house
sales team, exclusive, as well as independent sales representatives who carry our branded products and other non-competing
products. Our sales force is organized around major accounts, including Boot Barn, Tractor Supply Company and Dick’s Sporting
Goods, and around our target markets: outdoor, work, duty, commercial military, and western. Our sales force is organized
around brands, regions and customers in order to target a broad range of distribution channels. All of our sales people actively
call on their retail customer base to educate them on the quality, comfort, technical features and breadth of our product lines and
to ensure that our products are displayed effectively at retail locations.
6
Our Wholesale distribution channels vary by market:
● Our outdoor products are sold primarily through sporting goods stores, outdoor specialty stores, online retailers,
catalogs and mass merchants.
● Our work-related products are sold primarily through work related retailers, farm and ranch stores, specialty safety
stores, independent shoe stores, hardware stores and online retailers.
● Our duty products are sold primarily through uniform stores, catalog specialists and online retailers.
● Our commercial military products are sold primarily through base exchanges such as AAFES and consumer e-commerce
websites.
● Our western products are sold through western stores, work stores, specialty farm and ranch stores, online retailers and
more recently, fashion-oriented footwear retailers.
Retail
We market products directly to consumers through three retail strategies:
● Lehigh business-to-business including direct sales and through our Custom Fit websites;
● Consumer e-commerce websites and third-party marketplaces; and
● Our stores, which include our outdoor gear store and our retail store.
Websites
We sell our product lines on our websites at rockyboots.com, georgiaboot.com, durangoboot.com, muckbootcompany.com,
xtratuf.com, lehighoutfitters.com, lehighsafetyshoes.com, and slipgrips.com, as well as through online marketplaces. We believe
that our internet presence allows us to showcase the breadth and depth of our product lines in each of our target markets and
enables us to educate our consumers about the unique technical features of our products. We also sell to our business customers
directly through our Custom Fit websites that are tailored to the specific needs of our customers. Our customers’ employees order
directly through their employers’ established Custom Fit website, and the footwear is delivered directly to the consumer via a
common freight carrier. Our customers include large, national companies such as Carnival Cruise Lines, Pepsi, Schneider,
Whirlpool, Holland America Cruise Lines, and Republic Services.
Outdoor Gear and Retail Stores
We operate the Outdoor Gear Store in Nelsonville, Ohio. Our outdoor gear store primarily sells first quality or discontinued
products in addition to a limited amount of factory damaged goods. Related products from other manufacturers are also sold in
the store. Our outdoor gear store allows us to showcase the breadth of our product lines as well as to cost-effectively sell slow-
moving inventory. Our outdoor gear store also provides an opportunity to interact with consumers to better understand their
needs.
Lehigh’s successful continued focus on converting our customers from delivery via our mobile and retail stores to purchasing
via our Custom Fit sites and delivery direct has led to the continued reduction of the mobile and retail stores in the past several
years. As of December 31, 2022, our only remaining retail store is located at The Puget Sound Naval Base.
Contract Manufacturing
While we are focused on continuing to build our Wholesale and Retail business, we also actively bid, from time to time, on
eligible footwear contracts with the U.S. military. In addition to contracts with the U.S. military, we also bid on private label
contracts. Our sales under such contracts are dependent on us winning the bids for these contracts.
In 2022, we fulfilled several multiyear contracts for the U.S. military. We will continue to actively bid on U.S. military contracts.
7
Marketing and Advertising
We believe that our brands have a reputation for high quality, comfort, functionality and durability built through their long history
in the markets they serve. To further increase the strength and awareness of our brands, we have developed comprehensive
marketing and advertising programs to gain national exposure and expand brand awareness for each of our brands in their target
markets.
We have focused the majority of our advertising efforts on both digital advertising and consumer advertising in support of our
retail partners. Digital advertising includes online brand level marketing, search engine pay-per-click, retargeting and social
media targeting. A key component to supporting our retail partners includes in-store point of purchase materials that add a
dramatic focus to our brands and the products our retail partners carry. We also advertise through targeted national and local
cable programs, radio advertisements and print publications aimed at audiences that share the demographic profile of our typical
customers. In addition, we promote through event sponsorships which provide significant national exposure for all of our brands
as well as a direct connection to our target consumer. Our print advertisements and television commercials emphasize the
technical features of our products as well as their high quality, comfort, functionality and durability.
We also support independent dealers by listing their locations in our national print advertisements. In addition to our national
advertising campaigns, we have developed attractive merchandising displays and store-in-store concept fixturing that are
available to our retailers who purchase the breadth of our product lines. We also attend numerous tradeshows which allow us to
showcase our entire product line to retail buyers and have historically been an important source of new accounts.
Product Design and Development
We believe that product innovation is a key competitive advantage for us in each of our markets. Our goal in product design and
development is to continue to create and introduce new and innovative footwear and apparel products that combine our standards
of quality, functionality and comfort and that meet the changing needs of our retailers and consumers. Our product design and
development process is highly collaborative and is typically initiated both internally by our development staff and externally by
our retailers and suppliers, whose employees are generally active users of our products and understand the needs of our
consumers. Our product design and development personnel, marketing personnel and sales representatives work closely together
to identify opportunities for new styles, patterns, design improvements and newer, more advanced materials. We have a dedicated
group of product design and development professionals, some of whom are well recognized experts in the footwear and apparel
industries, who continually interact with consumers to better understand their needs and are committed to ensuring our products
reflect the most advanced designs, features and materials available in the marketplace.
Manufacturing and Sourcing
We manufacture footwear in facilities that we operate in the Dominican Republic, Puerto Rico, Chuzhou, China and Rock Island,
Illinois, and source footwear, apparel and accessories from third-party facilities in China, Vietnam, Dominican Republic and
Mexico. Our facilities in Chuzhou and Rock Island were acquired through the Acquisition. We do not have long-term contracts
with any of our third-party manufacturers. We believe that operating our own facilities significantly improves our knowledge of
the entire raw material sourcing and manufacturing process, which enables us to more efficiently source finished goods from
third parties that are of the highest quality and at the lowest cost available, as well as reduce our lead times. In addition, our
Puerto Rico and Rock Island facilities allow us to produce footwear for the U.S. military and other commercial businesses that
require production by a U.S. manufacturer. Sourcing products from offshore third-party facilities generally enables us to lower
our costs per unit while maintaining high product quality and limits the capital investment required to establish and maintain
company operated manufacturing facilities. Because quality is an important part of our value proposition to our retailers and
consumers, we source products from manufacturers who have demonstrated the intent and ability to maintain the high quality
that has become associated with our brands.
Quality control is stressed at every stage of the manufacturing process and is monitored by trained quality assurance personnel
at each of our manufacturing facilities, including our third-party factories. In addition, we utilize a team of procurement, quality
control and logistics employees in our China office to visit factories to conduct quality control reviews of raw materials, work in
process inventory and finished goods. We also utilize quality control personnel at our finished goods distribution facilities to
conduct quality control testing on incoming sourced finished goods and raw materials and inspect random samples from our
finished goods inventory from each of our manufacturing facilities to ensure that all items meet our high-quality standards.
8
Foreign Operations and Sales Outside of the U.S.
Our products are primarily distributed in the U.S., Canada, U.K. and other international markets, mainly in Europe. We ship our
products from our finished goods distribution facilities located in Ohio and Nevada. As a result of the Acquisition, we also utilize
a third-party distribution center in Canada. Certain of our retailers receive shipments directly from our manufacturing sources,
including all of our U.S. military sales, which are shipped directly from our manufacturing facility in Puerto Rico. Net sales to
foreign countries represented approximately 6.2% of net sales in 2022 and 6.9% of net sales in 2021.
As previously mentioned, we maintain manufacturing facilities that we operate in the Dominican Republic and Chuzhou, China.
In addition, we utilize an office in China to support our contract manufacturers.
The net book value of fixed assets located outside of the U.S. totaled $12.6 million at December 31, 2022, of which
approximately $4.6 million resides in the Dominican Republic and approximately $8.0 million resides in China.
Resources and Suppliers
We purchase raw materials from sources worldwide. We do not have any long-term supply contracts for the purchase of our raw
materials, except for limited blanket purchase orders on leather to protect wholesale selling prices for an extended period of time.
The principal raw materials used in the production of our products, in terms of dollar value, are leather, Gore-Tex waterproof
breathable fabric, Cordura nylon fabric and soling materials. We believe these materials will continue to be available from our
current suppliers. However, in the event these materials are not available from our current suppliers, we believe these products,
or similar products, would be available from alternative sources.
Seasonality and Weather
Historically, we have experienced significant seasonal fluctuations in our business as many of our footwear products are used by
consumers in adverse weather conditions. In order to meet these demands, we must manufacture and source footwear year-round
to be in a position to ship advance and at once orders for these products during the last two quarters of each year. Accordingly,
average inventory levels have been highest during the second and third quarters of each year and sales have been highest in the
last two quarters of the year. In addition, mild or dry weather conditions historically have had a material adverse effect on sales
of our outdoor products, particularly if they occurred in broad geographical areas during late fall or early winter.
Backlog
The dollar amount of our order backlog as of any date may not be indicative of actual future shipments and, accordingly, is not
material to an understanding of the business taken as a whole.
Intellectual Property
We rely on a combination of our trademarks, patents, trade dress, and other intellectual property rights, as well as contractual
provisions to protect our brands, product designs, technology, marketing materials, and other proprietary research and
development, although no such methods can afford complete protection. We own numerous design and utility patents for
footwear and footwear components (such as insoles and outsoles) in the U.S. and in several countries where our products are
sold or manufactured, including China. We own numerous U.S. and foreign registrations for the trademarks used in our business,
including our major brands Rocky, Georgia Boot, Durango, and Lehigh. We also acquired various patents and trademark
registrations through the Acquisition, including the brands Muck, XTRATUF, Servus and Ranger. In addition, we license the
use of third party trademarks, including Gore-Tex and Michelin, in order to market our products.
Our license with W. L. Gore & Associates, Inc. ("Gore") permits us to use the Gore-Tex and related marks on products and styles
that have been approved in advance by Gore. The license agreement has a one-year term that automatically renews each year,
unless either party elects to terminate by giving advance written notice to the other party by October 1 for termination effective
December 31 of that same year.
Similarly, our license with Michelin Lifestyle Limited permits us to use the Michelin brand and related marks on our products.
Our license agreement with Michelin Lifestyle Limited to use the Michelin name expires on December 31, 2025, with the option
to renew.
9
In the U.S. and China, our design patents are generally in effect for 15 years from the date of issuance. Our utility patents are
generally in effect for 20 years from the date of the filing of the patent application. Our trademarks are generally valid as long as
they are in use and their registrations are properly maintained.
While we have an active program to protect our intellectual property by filing for patents and trademark registrations, we do not
believe that our overall business is materially dependent on any individual patent or trademark. We are not aware of any material
infringement of our intellectual property rights or that we are infringing any intellectual property rights owned by third parties.
Moreover, we are not aware of any material conflicts concerning our trademarks or those owned by others. We actively enforce
our trademarks and patents, and pursue those who infringe upon them, whether domestically or internationally, as we deem
appropriate.
Competition
We operate in a very competitive environment. Product function, design, comfort, quality, technological and material
improvements, brand awareness, timeliness of product delivery and pricing are all important elements of competition in the
markets for our products. We believe that the strength of our brands, the quality of our products and our long-term relationships
with a broad range of retailers allows us to compete effectively in the footwear and apparel markets that we serve. However, we
compete with footwear and apparel companies that have greater financial, marketing, distribution and manufacturing resources
than we do. In addition, many of these competitors have strong brand name recognition in the markets they serve.
The footwear and apparel industry is also subject to rapid changes in consumer preferences. Some of our product lines are
susceptible to changes in both technical innovation and fashion trends. Therefore, the success of these products and styles are
more dependent on our ability to anticipate and respond to changing product, material and design innovations as well as fashion
trends and consumer demands in a timely manner. Our inability or failure to do so could adversely affect consumer acceptance
of these product lines and styles and could have a material adverse effect on our business, financial condition and results of
operations.
Human Capital
At December 31, 2022, we had approximately 2,500 employees of which approximately 2,490 are full time employees.
Approximately 1,900 of our employees work in our manufacturing facilities in the Dominican Republic, Puerto Rico, Rock
Island, Illinois and Chuzhou, China. We believe our relations with our employees are in good standing.
Employee Well Being
Founded from the humble beginnings of a small, family owned business, our employees have always been the key to making our
Company successful. As such, we believe that fostering an environment that advocates for all areas of employee health (including
physical, mental and emotional) is crucial. We offer a tuition assistance reimbursement program and an employee assistance
program, which can assist employees in various aspects of their personal life and overall well-being. We also encourage our
employees to take continuing education classes that will aid in their day-to-day work responsibilities and we promote a healthy
lifestyle through monthly newsletters and various health focused events throughout the year.
The health and safety of our employees is one of our highest priorities. Our Health and Wellness Committee strives to educate
our employees on the importance of taking care of yourself both inside and outside the workplace. Throughout the year we
contract with various health and wellness professionals outside of our organization to hold educational sessions for our employees
both in-person and virtually. In response to the COVID-19 pandemic, we have ensured flexibility in the workplace by allowing
our employees to work from home and we have increased our cleaning protocols. Nothing is more fundamental than providing
employees with an environment where they feel safe, secure and supported.
Talent Recruitment, Retention and Development
Our employee culture is built on our core values of integrity, responsibility and humility. The ability to attract, retain and develop
talented employees is crucial to our long-term success. We focus on attracting, developing and retaining highly talented
individuals through practices that promote inclusion, diversity and equality. We recruit through a variety of outreach methods
including our rockybrands.com/careers website and other online platforms, such as LinkedIn, college recruitment efforts,
network relationships and direct communication with career centers. When new employment opportunities within our Company
arise, we send out internal communications to inform all associates of new openings. We review internal applications for
consideration before considering external applicants.
10
We strive to maximize engagement with our employees in a variety of ways, including scheduled meetings between employees
and executive leadership within the first few months of employment, face-to-face and virtual interviews with employees
following 60 days and one year of employment, annual performance evaluations, regular check in surveys and exit surveys. We
also rely on our management team to influence growth and develop a path for success with employees on each team within our
organization. Quarterly, our CEO and CFO hold all-employee communication meetings to keep our employees apprised of recent
happenings within our organization and to allow employees a forum for their voice to be heard.
We are committed to having a diverse and inclusive workforce which is reflected in a wide range of cultures, religions, ethnicities
and nationalities as well as varied professional and educational backgrounds. We believe that the inclusion of diverse perspectives
results in better outcomes and policies. We aim to foster an inclusive workplace through recruitment and development efforts,
and through the retention of diverse talent with a goal of expanding representation across all dimensions of equality and inclusion.
We strive to provide an environment that allows our employees to bring their authentic selves to work every day, and we are
committed to fostering a workplace that is free of discrimination, harassment, and which promotes allyship, advocacy and an
overall sense of belonging.
Compensation and Benefits
Our compensation structure is set up to reward employees for performance. We regularly evaluate employee compensation to
ensure it is competitive and in-line with market benchmarks and to reward employees who perform at a high level. We offer
comprehensive benefit programs to our employees including medical, dental and vision. We also provide a 401(k) match and
safe harbor contribution, paid time off including maternal and paternal leave, life insurance and long-term and short-term
disability.
Available Information
As required by the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we file annual, quarterly and current
reports proxy statements and other information with the Securities and Exchange Commission ("SEC"). The SEC maintains a
website that contains information about issuers, like us, who file electronic reports with the SEC. The address of the SEC’s
website is www.sec.gov. In addition, we make available free of charge on our corporate website, www.rockybrands.com, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and, if applicable, amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after
such reports are electronically filed with or furnished to the SEC. Except as specifically incorporated by reference into this
Annual Report on Form 10-K, information on those websites is not part of this report.
ITEM 1A. RISK FACTORS.
An investment in our common stock is subject to certain risks inherent in our business. Before making an investment decision,
investors should carefully consider the risks and uncertainties described below, together with all of the other information included
or incorporated by reference in this Annual Report on Form 10-K. If any of the following risks occur, our business, results of
operations, financial condition and cash flows could be materially and adversely affected. These described risks are not the only
risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely
affect our business, results of operations, financial condition and cash flows. If any of these risks were to materialize, the value
of our common stock could decline significantly.
Business Risks
Expanding our brands into new footwear and apparel markets may be difficult and expensive, and if we are unable to
successfully continue such expansion, our brands may be adversely affected, and we may not achieve our planned sales
growth.
Our growth strategy is founded substantially on the expansion of our brands into new footwear and apparel markets. New
products that we introduce may not be successful with consumers or one or more of our brands may fall out of favor with
consumers. If we are unable to anticipate, identify or react appropriately to changes in consumer preferences, we may not grow
as fast as we plan to grow or our sales may decline, and our brand image and operating performance may suffer.
Furthermore, achieving market acceptance for new products will likely require us to exert substantial product development and
marketing efforts, which could result in a material increase in our operating expenses, and there can be no assurance that we will
have the resources necessary to undertake such efforts. Material increases in our operating expenses could adversely impact our
results of operations and cash flows.
11
We may also encounter difficulties in producing new products that we did not anticipate during the development stage. Our
development schedules for new products are difficult to predict and are subject to change as a result of shifting priorities in
response to consumer preferences and competing products. If we are not able to efficiently manufacture newly-developed
products in quantities sufficient to support retail distribution, we may not be able to recoup our investment in the development
of new products. Failure to gain market acceptance for new products that we introduce could impede our growth, reduce our
profits, adversely affect the image of our brands, erode our competitive position and result in long term harm to our business.
Our recent acquisition of the performance and lifestyle footwear business of certain subsidiaries of Honeywell
International Inc. carries certain inherent risks, and we may not be able to successfully achieve anticipated synergies, which
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our Acquisition that closed on March 15, 2021 involved inherent risks and we still face certain inherent risks such as:
● The potential loss of key personnel from the acquired business, our potential inability to achieve identified financial,
operating and other synergies anticipated to result from the acquisition;
●
changes in economic conditions; and
● potential unknown liabilities associated with the acquired business.
While we conducted financial and other due diligence in connection with the Acquisition and obtained representations and
warranties insurance coverage, the acquired business may have weaknesses or liabilities that were not accurately assessed or
realized at the time of the acquisition and insurance coverage may not cover (or fully cover) such matters. If we are not able to
successfully navigate such risks with respect to the acquired business, it could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
A majority of our products are produced outside the U.S. where we are subject to the risks of international commerce and
other international conditions.
A majority of our products are produced in the Dominican Republic, Vietnam, and China. Therefore, our business is subject to
certain risks of doing business offshore including:
●
the imposition of additional U.S. legislation and regulations relating to imports, including quotas, duties, taxes or other
charges or restrictions;
●
foreign governmental regulation and taxation, including tariffs, import and export controls and other non-tariff barriers;
●
fluctuations in foreign exchange rates;
●
changes in economic conditions, including expropriation and nationalization;
●
transportation conditions and costs in the Pacific and Caribbean;
●
changes in the political stability of these countries;
●
labor disputes and other work stoppages or interruptions;
●
changes in relationships between the U.S. and these countries; and
●
the occurrence of contagious disease or illness.
Changes in any of these factors could materially increase our costs of products or cause us to experience delays and we may not
be able to recover all of our cost increases or missed sales. If any of these factors were to render the conduct of business in these
countries undesirable or impracticable, we would have to manufacture or source our products elsewhere. There can be no
assurance that additional sources or products would be available to us or, if available, that these sources could be relied on to
provide product at terms favorable to us. The occurrence of any of these developments could have a material adverse effect on
our business, financial condition, results of operations and cash flows.
12
We conduct a portion of our business pursuant to U.S. military contracts, which are subject to unique risks.
Our contracts with the U.S. military subject our business to unique risks. In 2022, 2.3% of our revenues were earned pursuant to
U.S. military contracts. Business conducted pursuant to such contracts is subject to extensive procurement regulations and other
unique risks. The U.S. military may modify, curtail or choose not to renew one or more of our contracts. In addition, funding
pursuant to our U.S. military contracts may be reduced or withheld as part of the U.S. Congressional appropriations process due
to fiscal constraints and/or changes in U.S. military strategy. Our contracts with the U.S. military are fixed-price contracts. While
fixed price contracts enable us to benefit from performance improvements, cost reductions and efficiencies, they also subject us
to the risk of reduced margins or losses if we are unable to achieve estimated costs reductions. The U.S. military provides
preference on contract bids to small businesses and our current company structure classifies us as a large business which could
have an effect on our ability to be awarded new contracts in the future.
Our success depends on our ability to anticipate consumer trends.
Demand for our products may be adversely affected by changing consumer trends. Our future success will depend upon our
ability to anticipate and respond to changing consumer preferences and technical design or material developments in a timely
manner. The failure to adequately anticipate or respond to these changes could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We depend on a limited number of suppliers for key production materials, and any disruption in the supply of such materials
could interrupt product manufacturing and increase product costs.
We purchase raw materials from a number of domestic and foreign sources. We do not have any long-term supply contracts for
the purchase of our raw materials, except for limited blanket orders on leather. The principal raw materials used in the production
of our footwear, in terms of dollar value, are leather, Gore-Tex waterproof breathable fabric, Cordura nylon fabric and soling
materials. Availability or change in the prices of our raw materials could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Our ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that
otherwise affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor
disputes or severe weather due to climate change. These issues have in the past and may in the future delay importation of
products or require us to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives
may not be available on short notice or could result in higher costs, which could have an adverse impact on our business and
financial condition.
Our outdoor and insulated products are seasonal and sales of such products are sensitive to weather conditions.
We have historically experienced significant seasonal fluctuations in our business because we derive a significant portion of our
revenues from sales of our outdoor products. Many of our outdoor products are used by consumers in cold or wet weather. As a
result, a majority of orders for these products are placed by our retailers in January through April for delivery in July through
October. In order to meet demand, we must manufacture and source outdoor footwear year-round to be in a position to ship
advance orders for these products during the last two quarters of each year. Accordingly, average inventory levels have been
highest during the second and third quarters of each year and sales have been highest in the last two quarters of each year. There
is no assurance that we will have either sufficient inventory to satisfy demand in any particular quarter or have sufficient demand
to sell substantially all of our inventory without significant markdowns. Mild or dry weather has in the past and may in the future
have a material adverse effect on sales of our products, particularly if mild or dry weather conditions occur in broad geographical
areas during late fall or early winter.
Our business could suffer if our third-party manufacturers violate labor, environmental or other applicable laws or fail to
conform to generally accepted ethical standards.
We require our third-party manufacturers to meet our standards for working conditions and other matters before we are willing
to place business with them. As a result, we may not always obtain the lowest cost production. Moreover, we do not control our
third-party manufacturers or their respective business practices. If one of our third-party manufacturers violates generally
accepted labor standards by, for example, using forced or indentured labor or child labor, failing to pay compensation in
accordance with local law, failing to operate its factories in compliance with local safety regulations or diverging from other
labor practices generally accepted as ethical, we likely would cease dealing with that manufacturer, and we could suffer an
interruption in our product supply. Similarly, if one or more of our third-party manufacturers violate applicable environmental
or other laws and regulations, we could suffer an interruption in our product supply. In addition, such actions by a manufacturer
13
could result in negative publicity and may damage our reputation and the value of our brand and discourage retail customers and
consumers from buying our products.
The growth of our business will be dependent upon the availability of adequate capital.
The growth of our business will depend on the availability of adequate capital, which in turn will depend largely on cash flow
generated by our business and the availability of equity and debt financing. We cannot assure that our operations will generate
positive cash flow or that we will be able to obtain equity or debt financing on acceptable terms or at all. Our credit
facilities contain provisions that restrict our ability to incur additional indebtedness or make substantial asset sales that might
otherwise be used to finance our expansion. Security interests in substantially all of our assets, which may further limit our access
to certain capital markets or lending sources, secure our obligations under our credit facilities. Moreover, the actual availability
of funds under our credit facilities is limited to specified percentages of our eligible inventory and accounts receivable.
Accordingly, opportunities for increasing our cash on hand through sales of inventory would be partially offset by reduced
availability under our credit facilities. As a result, we may not be able to finance our current expansion plans.
Our current level of indebtedness could adversely affect our business by increasing our borrowing costs and decreasing our
overall business flexibility.
Our current level of indebtedness could adversely affect our business by increasing our borrowing costs and decreasing our
overall business flexibility. We have debt outstanding under two credit facilities, which contain customary restrictive covenants
imposing operating and financial restrictions, including restrictions that may limit our ability to engage in certain actions that
may be in our long-term best interests.
We must comply with the restrictive covenants contained in our credit facilities.
Our credit facilities require us to comply with certain financial restrictive covenants that impose restrictions on our operations,
including our ability to incur additional indebtedness, make investments of other restricted payments, sell or otherwise dispose
of assets and engage in other activities. Any failure by us to comply with the restrictive covenants could result in an event of
default under those borrowing arrangements, in which case the lenders could elect to declare all amounts outstanding thereunder
to be due and payable, which could have a material adverse effect on our financial condition. Our credit facilities contain
restrictive covenants which requires us to maintain a maximum total average ratio and a minimum fixed charge coverage ratio.
Interest rate increases could adversely affect our financial results.
An increase in interest rates under our credit facilities would adversely affect our financial results, as our loan agreements provide
for adjustments in our interest rates based on changes to the Secured Overnight Financing Rate (SOFR) and/or the prime rate.
We face intense competition, including competition from companies with significantly greater resources than ours, and if we
are unable to compete effectively with these companies, our market share may decline and our business could be harmed.
The footwear and apparel industries are intensely competitive, and we expect competition to increase in the future. A number of
our competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution
resources than we do, as well as greater brand awareness in the footwear market. Our ability to succeed depends on our ability
to remain competitive with respect to the quality, design, price and timely delivery of products. Competition could materially
adversely affect our business, financial condition, results of operations and cash flows.
Our financial success is influenced by the success of our customers, and the loss of a key customer could have a material
adverse effect on our financial condition and results of operations.
Much of our financial success is directly related to the ability of our retailer and distributor partners to successfully market and
sell our brands directly to consumers. If a retailer or distributor partner fails to satisfy contractual obligations or to otherwise
meet our expectations, it may be difficult to locate an acceptable substitute partner. If we determine that it is necessary to make
a change, we may experience increased costs, loss of customers, or increased credit or inventory risk. In addition, there is no
guarantee that any replacement retailer or distributor partner will generate results that are more favorable than the terminated
party. We currently do not have long-term contracts with any of our retailers. Sales to our retailers and distributors are generally
on an order-by-order basis and are subject to rights of cancellation and rescheduling by our wholesale customers. We use the
timing of delivery dates for our wholesale customer orders as a key factor in forecasting our sales and earnings for future periods.
If any of our major customers experience a significant downturn in business or fail to remain committed to our products or brands,
these customers could postpone, reduce, or discontinue purchases from us, which could result in us failing to meet our forecasted
14
results. These risks have been exacerbated recently as our key retail customers are operating within a retail industry that continues
to undergo significant structural changes fueled by technology and the internet, changes in consumer purchasing behavior and a
shrinking retail footprint. We may lose key retail and wholesale customers if they fail to manage the impact of the rapidly
changing retail environment. Any loss of one of these key customers, the financial collapse or bankruptcy of one of these
customers, or a significant reduction in purchases from one of these customers could result in a significant decline in sales, write-
downs of excess inventory, or increased discounts to our customers, any of which could have a material adverse effect on our
financial condition or results of operations.
Certain of our larger wholesale customers may develop and manufacture competing products under their own brands and
reduce purchases of our branded products.
Certain of our larger wholesale customers may develop, and in certain cases have developed, products under their own brands
that compete with our branded products. Wholesale customers who increase the concentration of their own brands may result in
a reduction or elimination of purchases of our branded products, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We currently manufacture a portion of our products, and we may not be able to do so in the future, at costs that are competitive
with those of competitors who source their goods.
We currently plan to retain our internal manufacturing capability in order to continue benefiting from expertise we have gained
with respect to footwear manufacturing methods conducted at our manufacturing facilities. We continue to evaluate our
manufacturing facilities and third-party manufacturing alternatives in order to determine the appropriate size and scope of our
manufacturing facilities. There can be no assurance that the costs of products that continue to be manufactured by us can remain
competitive with products sourced from third parties.
We rely on our distribution centers in Ohio and Nevada and manufacturing facilities in the Dominican Republic, Puerto
Rico, China and Illinois, and if there is a natural disaster or other serious disruption at any of these facilities, we may be
unable to deliver merchandise effectively to our retailers and consumers.
We rely on our distribution centers located in Ohio and Nevada and our manufacturing facilities in the Dominican Republic,
Puerto Rico, China and Illinois. Any natural disaster or other serious disruption at any of these facilities due to fire, tornado,
flood, terrorist attack or any other cause could damage our ability to manufacture our products, a portion of our inventory, or
impair our ability to use our distribution center as a docking location for merchandise. Any of these occurrences could impair
our ability to adequately supply our retailers and consumers and harm our operating results.
If our efforts to establish and protect our trademarks, patents and other intellectual property are unsuccessful, the value of
our brands could suffer.
We regard certain of our footwear designs as proprietary and rely on patents to protect those designs. We believe that the
ownership of patents is a significant factor in our business. Existing intellectual property laws afford only limited protection of
our proprietary rights, and it may be possible for unauthorized third parties to copy certain of our footwear designs or to reverse
engineer or otherwise obtain and use information that we regard as proprietary. If our patents are found to be invalid, however,
to the extent they have served, or would in the future serve, as a barrier to entry to our competitors, such invalidity could have a
material adverse effect on our business, financial condition, results of operations and cash flows.
We own U.S. registrations for many our trademarks, trade names and designs, including such marks as Rocky, Georgia Boot,
Durango, Lehigh, Muck, XTRATUF, Servus and Ranger. Additional trademarks, trade names and designs are the subject of
pending federal applications for registration. We also use and have common law rights in certain trademarks. Over time, we have
increased distribution of our goods in several foreign countries. Accordingly, we have applied for trademark registrations in a
number of these countries. We intend to enforce our trademarks and trade names against unauthorized use by third parties.
An impairment of intangibles, including goodwill, could have an adverse impact to the Company’s results of operations.
The carrying value of intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition
date. Acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be
evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not
recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired
by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect
the Company’s results of operations.
15
The COVID-19 outbreak has had, and may continue to have, an adverse impact on our business, financial condition and
results of operations.
The World Health Organization declared the novel coronavirus (COVID-19), a pandemic in March 2020. Our business,
financial condition and results of operations have been and may continue to be adversely affected by the COVID-19
outbreak. The COVID-19 outbreak has affected nearly all regions of the world, and preventative measures taken to contain or
mitigate the outbreak have caused, and are continuing to cause, business slowdown or shutdown in affected areas. This has and
could continue to negatively affect the global economy, including reduced consumer spending and disruption of manufacturing
and global supply chains. We cannot predict the degree to which our business, financial condition and results of operations will
be affected by the COVID-19 pandemic, and the effects could be material. Potential impacts to our business, financial condition
and results of operations include:
● Disruption to our employees, suppliers, third party manufacturing partners, vendors and logistics providers, including
through the effects of facility closures, reductions in operating hours, labor shortages, and changes in operating
procedures;
● Closure or reduced operations of brick and mortar retail stores and reductions in customer traffic, which adversely
affects our Wholesale segment;
● Lower performance of customers in our Wholesale segment, which may result in reduction or cancellation of future
orders;
● Closure or reduced operations of manufacturing and other facilities and businesses served by our Lehigh CustomFit
business, resulting in reductions in future orders, which adversely affects our retail channel;
● Reductions in consumer spending due to macroeconomic conditions caused by the COVID-19 pandemic, including
decreased disposable income and increased unemployment, which may result in decreased sales;
● Additional expenses related to mitigating the pandemic's impact on regular operations;
● Supply chain disruption effecting our ability to receive and distribute product as well as increases in supply chain costs;
and
● Continued volatility in the availability and prices for commodities and raw materials used in the Company's products
and related inflationary pressures.
In addition, the disruption caused to the global economy and our business could lead to triggering events indicating that the
carrying value or certain assets, such as long-lived assets, intangibles and goodwill, may not be recoverable. Any required non-
cash impairment charges will adversely affect our results of operations.
The further spread of COVID-19 and the emergence of new variants, and the requirements to take action to help limit the spread
of the illness, may impact our ability to carry out our business as usual and may materially adversely impact global economic
conditions, our business, results of operations and financial condition.
Our success depends on our ability to forecast sales.
Our investments in infrastructure and product inventory are based on sales forecasts and are necessarily made in advance of
actual sales. The markets in which we do business are highly competitive, and our business is affected by a variety of factors,
including brand awareness, changing consumer preferences, product innovations, susceptibility to fashion trends, retail market
conditions, weather conditions and economic conditions, and other factors. One of our principal challenges is to improve our
ability to predict these factors in order to enable us to better match production with demand. In addition, our growth over the
years has created the need to increase the investment in infrastructure and product inventory and to enhance our systems. To the
extent sales forecasts are not achieved, costs associated with the infrastructure and carrying costs of product inventory would
represent a higher percentage of revenue, which would adversely affect our business, financial condition, results of operations
and cash flows.
16
Our dividend policy may change.
Although we have paid dividends to our shareholders, we have no obligation to continue doing so and may change our dividend
policy at any time without notice to our shareholders. Holders of our common stock are only entitled to receive such cash
dividends as our Board of Directors may declare out of funds legally available for such payments.
Industry Risks
Because the footwear market is sensitive to decreased consumer spending and slow economic cycles, if general economic
conditions deteriorate, many of our customers may significantly reduce their purchases from us or may not be able to pay for
our products in a timely manner.
The footwear industry has been subject to cyclical variation and decline in performance when consumer spending decreases or
softness appears in the retail market. Many factors affect the level of consumer spending in the footwear industry, including:
● general business conditions;
●
interest rates;
●
the availability of consumer credit;
● weather;
●
increases in prices of nondiscretionary goods;
●
taxation; and
●
consumer confidence in future economic conditions.
Consumer purchases of discretionary items, including our products, may decline during recessionary periods and also may
decline at other times when disposable income is lower. A downturn in regional economies where we sell products also reduces
sales.
The continued shift in the marketplace from traditional independent retailers to large mass merchandisers may result in
decreased margins.
A continued shift in the marketplace from traditional independent retailers to large mass merchandisers has increased the pressure
on many footwear manufacturers to sell products to these mass merchandisers at less favorable margins. Because of competition
from large discount mass merchandisers, a number of our small retailing customers have gone out of business, and in the future
more of these customers may go out of business, which could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
If we do not effectively respond to the trend of consumer shopping moving to online retailers, including third party
marketplaces, it may negatively impact our business.
The retail industry is rapidly changing, and we must ensure we are evolving both our own online e-commerce websites and third
party marketplaces. We must also provide digital assistance to our wholesale customers to support their e-commerce websites.
Failure to timely identify and effectively respond to the online trends of the retail industry could negatively impact our product
reach and market share. We are making technology investments in our websites and mobile applications. If we are unable to
improve or develop relevant technology in a timely manner, our ability to compete and our results of operations could be
adversely affected.
17
General Risk Factors
Changes to U.S. tax, tariff and import/export regulations may have a negative effect on global economic conditions,
financial markets and our business.
The current political climate has introduced greater uncertainty with respect to trade policies, tariffs and government regulations
affecting trade between the U.S. and other countries. We source products from manufacturers located outside of the U.S.,
primarily in China, and Vietnam. Major developments in tax policy or trade relations, such as the disallowance of tax deductions
for imported products or the imposition of unilateral tariffs on imported products, could have a material adverse effect on our
business, results of operations and liquidity.
There are risks, including stock market volatility, inherent in owning our common stock.
The market price and volume of our common stock have been, and may continue to be, subject to significant fluctuations. These
fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on our results
of operations and financial position, or a change in opinion in the market regarding our business prospects or other factors, many
of which may be outside our immediate control. Changes in the amounts and frequency of share repurchases or dividends also
could adversely affect the value of our common stock.
Disruption of our information technology systems could adversely affect our business
Our information technology systems are critical to our business operations. Any interruption, unauthorized access, impairment
or loss of data integrity or malfunction of these systems could severely impact our business, including delays in product
fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the
implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or
reduce the efficiency of our operations. Disruption to our information technology systems may be caused by natural disasters,
accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses,
physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and our
disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to our
online services and preclude retail transactions. System failures and disruptions could also impede the manufacturing and
shipping of products, transactions processing and financial reporting. Additionally, we may be adversely affected if we are unable
to improve, upgrade, maintain, and expand our technology systems.
Some of our employees are working remotely which could strain our information technology systems and impact business
continuity plans. Remote work could also introduce operational risk such as, but not limited to, cyber security risks.
A cyber-security breach could have a material adverse effect on our business and reputation.
We rely heavily on digital technologies for the successful operation of our business, including electronic messaging, digital
marketing efforts and the collection and retention of customer data and employee information. We also rely on third parties to
process credit card transactions, perform online e-commerce and social media activities and retain data relating to our financial
position and results of operations, strategic initiatives and other important information. Despite the security measures we have in
place, our facilities and systems and those of our third-party service providers, may be vulnerable to cyber-security breaches,
acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any
misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information, whether by us or
by our third-party service providers, could damage our reputation and our customers’ willingness to purchase our products, which
may adversely affect our business. In addition, we could incur liabilities and remediation costs, including regulatory fines,
reimbursement or other compensatory costs, additional compliance costs, and costs for providing credit monitoring or other
benefits to customers or employees affected. We maintain cyber risk insurance, but this insurance may not be sufficient to cover
all of our losses from any future breaches of our systems.
Compliance with data privacy and marketing laws may subject us to increased additional costs, and our ability to effectively
engage customers via personalized marketing may be impacted, all of which may have a material adverse effect on our
business operations.
In addition, as data privacy and marketing laws change, we may incur additional costs to ensure we remain in compliance. If
applicable data privacy and marketing laws become more restrictive at the federal or state level, our compliance costs may
increase, our ability to effectively engage customers via personalized marketing may decrease, opportunities for growth may be
curtailed by our compliance capabilities or reputational harm and the potential liability for security breaches may increase. We
18
are also subject to U.S. and international data privacy and cybersecurity laws and regulations, which may impose fines and
penalties for noncompliance and may have an adverse effect on our operations. For example, the European Union’s General Data
Protection Regulation (the "GDPR"), which became effective in May 2018, extends the scope of the European Union’s data
protection laws to all companies processing data of European Union residents, regardless of our location, and imposes significant
new requirements on how we collect, processes and transfer personal data.
In addition, California adopted the California Consumer Privacy Act ("CCPA"), which became effective January 1, 2020 and
limits how we may collect and use personal data. As a result, GDPR and CCPA compliance increased our responsibility and
potential liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to
ensure compliance with the new data protection rules. Any failure to comply with these rules and related national laws of
European Union member states, could lead to government enforcement actions and significant penalties and fines against us, and
could adversely affect our business, financial condition, cash flows and results of operations. Compliance with any of the
foregoing laws and regulations can be costly.
We are subject to certain environmental and other regulations.
Some of our operations use substances regulated under various federal, state, local and international environmental and pollution
laws, including those relating to the storage, use, discharge, disposal and labeling of, and human exposure to, hazardous and
toxic materials. Compliance with current or future environmental laws and regulations could restrict our ability to expand our
facilities or require us to acquire additional expensive equipment, modify our manufacturing processes or incur other significant
expenses. In addition, we could incur costs, fines and civil or criminal sanctions, third-party property damage or personal injury
claims or could be required to incur substantial investigation or remediation costs, if we were to violate or become liable under
any environmental laws. Liability under environmental laws can be joint and several and without regard to comparative fault.
There can be no assurance that violations of environmental laws or regulations have not occurred in the past and will not occur
in the future as a result of our inability to obtain permits, human error, equipment failure or other causes, and any such violations
could harm our business, financial condition, results of operations and cash flows.
We are subject to periodic litigation and other regulatory proceedings, which could result in the unexpected expenditure of
time and resources.
We are a defendant from time to time in lawsuits and regulatory actions relating to our business and to our past operations. Due
to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any
such proceedings. An unfavorable outcome could have a material adverse impact on our business, financial condition and results
of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive
and will require that we devote substantial resources and executive time to defend, thereby diverting management’s attention and
resources that are needed to successfully run our business.
Public health crises could harm our business.
Public health crises, such as the outbreak of the coronavirus (COVID-19), could cause disruption to the Company’s manufacturers
and suppliers located in China, Vietnam and elsewhere. If our manufacturers and suppliers are so affected, our supply chain
could be disrupted causing our product shipments to be delayed. In addition, a public health crises could negatively impact our
consumer spending in impacted regions or globally, which could materially adversely affect our business, financial condition,
and results of operation.
The impact of COVID-19 and the related economic, business and market disruptions were wide-ranging. These impacts have
had and may continue to cause disruptions from both a manufacturing and distribution standpoint. As a result of COVID-19, we
were required to temporarily close our manufacturing facilities in both the Dominican Republic and Puerto Rico for several
weeks spanning through both the first and second quarters of 2020. In response to COVID-19, we have incurred incremental
costs associated with protecting the health and safety of our global workforce, enhanced sanitization of our global operating
facilities, and information technology capabilities for employees operating remotely. Beginning in March 2020, restrictions
imposed by various governmental authorities on both domestic and international shipping and travel have caused a disruption to
the timing of delivery of raw materials and finished goods resulting in negative impacts to our financial position, results of
operations and cash flows. The duration and severity of the outbreak and its long-term impact on our business are uncertain at
this time. We are unable to predict the impact that COVID-19 will have on our future financial position, results of operations and
cash flows.
19
Loss of services of our key personnel could adversely affect our business.
The development of our business has been, and will continue to be, dependent on execution at all levels of our organization
which requires an experienced and talented executive team. The loss of service of any of the executive officers or key employees
could have an adverse effect on our business and financial condition. We have entered into employment agreements with several
executive officers and key employees, and also offer compensation packages designed to attract and retain talent.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We own the following properties as of December 31, 2022:
Purpose
Executive Office
Executive Office and
Outdoor Gear Store
Executive Office
Distribution Center
Manufacturing Facility
Location
Nelsonville, Ohio
Nelsonville, Ohio
Nelsonville, Ohio
Logan, Ohio
Chuzhou, China
Square Footage
24,400
Utilized Segments
Wholesale, Retail, Contract Manufacturing
52,300
7,200
275,000
576,000
Wholesale and Retail
Wholesale and Retail
Wholesale, Retail, Contract Manufacturing
Wholesale and Retail
We lease the following properties as of December 31, 2022:
Purpose
Office Building
Office Building
Location
China
Westwood, Massachusetts
Distribution Center
Reno, Nevada
Distribution Center
Lancaster, Ohio
Puerto Rico
Puerto Rico
Square Footage
Utilized Segments
5,600
16,500
355,680
60,100
84,600
Wholesale and Retail
Wholesale and Retail
Wholesale, Retail, Contract
Manufacturing
Wholesale, Retail, Contract
Manufacturing
Wholesale and Contract Manufacturing
22,700
Wholesale and Contract Manufacturing
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Manufacturing
Facility
Rock Island, Illinois
45,000
Wholesale and Retail
Dominican Republic
29,700
Wholesale and Contract Manufacturing
Dominican Republic
34,400
Wholesale and Contract Manufacturing
Dominican Republic
20,100
Wholesale and Contract Manufacturing
Dominican Republic
93,700
Wholesale and Contract Manufacturing
Dominican Republic
36,200
Wholesale and Contract Manufacturing
Dominican Republic
17,400
Wholesale and Contract Manufacturing
Dominican Republic
17,900
Wholesale and Contract Manufacturing
20
Lease
Expiration
2024
2022
2026
2023
2027
2027
2026
2023
2023
2023
2024
2024
2026
2026
ITEM 3. LEGAL PROCEEDINGS.
We are, from time to time, a party to litigation which arises in the normal course of our business. Although the ultimate resolution
of pending proceedings cannot be determined, in the opinion of management, the resolution of these proceedings in the aggregate
will not have a material adverse effect on our financial position, results of operations, or liquidity. A discussion of legal matters
is found in Note 20 of our Consolidated Financial Statements included in Part II - Item 8. Financial Statements and Supplementary
Data of this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
21
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
PART II
Market Information
Our common stock trades on the NASDAQ Global Select Market under the symbol "RCKY."
As of February 28, 2023, there were 70 shareholders of record of our common stock.
Dividends
In 2013, our Board of Directors approved a dividend policy pursuant to which the Company intends to continue paying
comparable cash dividends on its common stock.
Share Repurchases
On March 8, 2021, we announced a $7,500,000 share repurchase program, which expired on March 4, 2022. There has not been
an announcement for a new repurchase program since the prior program’s expiration in March 2022, and there have been
no purchases of common stock since the repurchase program was expired and not renewed.
Performance Graph
The following performance graph compares our cumulative shareholder return on our common shares with the NASDAQ
Composite Index and the Standard & Poor's Footwear Index, which is a published industry index. The comparison of the
cumulative total return to shareholders for each of the periods assumes that $100 was invested in our common stock on December
31, 2017 and in the NASDAQ Stock Market (U.S.) Index and the Standard & Poor's Footwear Index and that all dividends were
reinvested. This comparison includes the period ended December 31, 2017 through the period ended December 31, 2022.
ITEM 6. [RESERVED]
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes the matters
that we consider to be important to understanding the results of our operations for each of the two years in the period ended
December 31, 2022 and 2021, and our capital resources and liquidity as of December 31, 2022 and 2021. A discussion of the
changes in our results of operations between the years ended December 31, 2021 and December 31, 2020 has been omitted from
this Annual Report on Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on
March 15, 2022, which is available free of charge on the SEC's website at https://www.sec.gov/edgar/search/ and our corporate
website (www.rockybrands.com). Use of the terms "Rocky Brands," the "Company," "we," "us" and "our" in this discussion refer
to Rocky Brands, Inc. and its subsidiaries. Our fiscal year begins on January 1 and ends on December 31. We analyze the results
of our operations for the last two years (including the trends in the overall business), followed by a discussion of our cash flows
and liquidity, our credit facilities, and contractual commitments. We then provide a review of the critical accounting judgments
and estimates that we have made that we believe are most important to an understanding of our MD&A and our Consolidated
Financial Statements. We conclude our MD&A with information on recent accounting pronouncements which we adopted during
the year, as well as those not yet adopted that are expected to have an impact on our financial accounting practices.
The following discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto,
included elsewhere herein. The forward-looking statements in this section and other parts of this document involve risks and
uncertainties including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results
could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the
caption "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995" below. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of the Company.
EXECUTIVE OVERVIEW
We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of
well recognized brand names including Rocky, Georgia Boot, Durango, Lehigh, Muck, XTRATUF, Servus, Ranger and the
licensed brand Michelin.
On January 24, 2021, we entered into a Purchase Agreement (the "Purchase Agreement") with certain subsidiaries of Honeywell
International Inc. (collectively, "Honeywell"), to purchase Honeywell's performance and lifestyle footwear business, including
brand names, trademarks, assets and liabilities associated with Honeywell's performance and lifestyle footwear business (the
"Acquisition") for an aggregate purchase price of $212 million. We closed on the Acquisition on March 15, 2021 for preliminary
aggregate closing price of approximately $207 million, net of cash acquired, based on preliminary working capital and other
adjustments. Upon a final agreement of net working capital as of the Acquisition Date, we owed Honeywell an additional $5.4
million. The Acquisition was funded through cash on hand and borrowings under two new credit facilities. See Note 9 for
information regarding the two new credit facilities. On September 30, 2022, we completed the sale of the NEOS brand and related
assets. See Note 4 for additional information.
The Acquisition expanded our brand portfolio to include Muck, XTRATUF, Servus, Ranger and NEOS brands (the "Acquired
Brands").
Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are
organized around six target markets: outdoor, work, duty, commercial military, military, and western. Our footwear products
incorporate varying features and are positioned across a range of suggested retail price points from $26.00 for our value priced
products to $520.00 for our premium products. In addition, as part of our strategy of outfitting consumers from head-to-toe, we
market complementary branded apparel and accessories that we believe leverage the strength and positioning of each of our
brands
Our products are distributed through three distinct business segments: Wholesale, Retail and Contract Manufacturing. In our
Wholesale business, we distribute our products through a wide range of distribution channels representing over 10,000 retail
store locations in the U.S., Canada, U.K., and other international markets such as Europe. Our Wholesale channels vary by
product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass
merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers. Our Retail business
includes direct sales of our products to consumers through our business to business web platform, e-commerce websites, third
party marketplaces and our Rocky Outdoor Gear Store. Our contract manufacturing segment includes sales to the U.S. military,
23
private label sales and any sales to customers in which we are contracted to manufacture or source a specific footwear product
for a customer.
Our growth strategy is founded substantially on the expansion of our brands into new footwear and apparel markets. New
products that we introduce may not be successful with consumers or one or more of our brands may fall out of favor with
consumers. If we are unable to anticipate, identify or react appropriately to changes in consumer preferences, we may not grow
as fast as we plan to grow or our sales may decline, and our brand image and operating performance may suffer.
Furthermore, achieving market acceptance for new products will likely require us to exert substantial product development and
marketing efforts, which could result in a material increase in our operating expenses and there can be no assurance that we will
have the resources necessary to undertake such efforts. Material increases in our operating expenses could adversely impact our
results of operations and cash flows.
We may also encounter difficulties in producing new products that we did not anticipate during the development stage. Our
development schedules for new products are difficult to predict and are subject to change as a result of shifting priorities in
response to consumer preferences and competing products. If we are not able to efficiently manufacture newly-developed
products in quantities sufficient to support retail distribution, we may not be able to recoup our investment in the development
of new products. Failure to gain market acceptance for new products that we introduce could impede our growth, reduce our
profits, adversely affect the image of our brands, erode our competitive position and result in long term harm to our business.
Net sales. Net sales and related cost of goods sold are recognized at the time products are shipped to the customer and title
transfers. Net sales are recorded net of estimated sales discounts and returns based upon specific customer agreements and
historical trends. Net sales include royalty income from licensing our brands.
Cost of goods sold. Our cost of goods sold represents our costs to manufacture products in our own facilities, including raw
materials costs and all overhead expenses related to production, as well as the cost to purchase finished products from our third-
party manufacturers. Cost of goods sold also includes the cost to transport these products to our distribution center.
Operating expenses. Our operating expenses consist primarily of selling, marketing, wages and related payroll and employee
benefit costs, travel and insurance expenses, depreciation, amortization, professional fees, software licensing fees, facility
expenses, bank charges, warehouse and outbound freight expenses. We also incurred significant operating expenses and
acquisition amortization and restructuring costs associated with the Acquisition during the twelve months ended December 31,
2022.
Percentage of Net Sales
The following table sets forth consolidated statements of operations data as percentages of total net sales:
Net sales
Cost of goods sold
Gross margin
Operating expenses
Income from operations
Results of Operations
December 31, 2022 Compared to Year Ended December 31, 2021
Twelve Months Ended
December 31,
2022
2021
100.0%
63.4
36.6
29.4
7.2%
100.0 %
62.2
37.8
30.8
7.0 %
($ in thousands)
NET SALES:
Wholesale
Retail
Contract Manufacturing
Total Net Sales
Twelve Months Ended
December 31,
2022
2021
Inc./ (Dec.) Inc./ (Dec.)
$
$
484,779 $
115,354
15,342
615,475 $
391,070 $
94,658
28,499
514,227 $
93,709
20,696
(13,157)
101,248
24.0%
21.9
(46.2)
19.7%
24
Included in Wholesale net sales for the twelve months ended December 31, 2022 is $216.9 million of net sales attributed to the
Acquired Brands and $3.6 million of inventory net sales related to the divestiture of the NEOS brand during the third quarter of
2022. Included in Wholesale net sales for the twelve months ended December 31, 2021 is $160.0 million of net sales attributed
to the Acquired Brands. Adjusted Wholesale net sales for the year ended December 31, 2022 to exclude the divestiture of the
NEOS brand is $481.2 million. Wholesale sales increased due to strong demand for our products as consumers continued to
respond favorably to our recent product introductions and we were able to capitalize on our strong inventory position which
allowed us to gain additional market share and shelf space.
Included in Retail net sales for the twelve months ended December 31, 2022 and 2021 is $25.9 and $17.6 million, respectively, of
net sales attributed to the Acquired Brands. Retail sales increased due to strong growth in our direct to consumer e-Commerce
and marketplace businesses during the year as well as growth in our Lehigh business-to-business platform. We have increased
our targeted marketing efforts and brand awareness, which led to increased traffic on our branded websites.
Contract Manufacturing net sales decreased due to the expiring contracts with the U.S. military during the twelve months ended
December 31, 2022.
($ in thousands)
GROSS MARGIN:
Wholesale Margin $'s
Margin %
Retail Margin $'s
Margin %
Contract Manufacturing Margin $'s
Margin %
Total Margin $'s
Margin %
Twelve Months Ended
December 31,
2021
2022
Inc./ (Dec.)
$
$
$
$
165,059 $
34.0%
57,817 $
50.1%
2,343 $
15.3%
225,219 $
36.6%
140,166 $
35.8%
47,792 $
50.5%
6,578 $
23.1%
194,536 $
37.8%
24,893
-1.8%
10,025
-0.4%
(4,235)
-7.8%
30,683
-1.2%
Excluding $1.1 million of gross margin and sales relating to the divestiture of the NEOS brand, Wholesale gross margins were
34.1% for the year ended December 31, 2022. On an adjusted basis, excluding a one-time inventory fair value adjustment
associated with the Acquisition of $3.5 million, Wholesale gross margins were 36.7% for the year ended December 31, 2021.
The decrease in margin is mainly attributable to increased shipping and freight costs.
Retail gross margins decreased due to increased product costs and freight costs for the year ended December 31, 2022.
Contract Manufacturing gross margin decreased for the year ended 2022 compared to 2021 due to increased product costs. Gross
margin also decreased due to the expiration of certain contracts with the U.S. military during the twelve months ended December
31, 2022.
($ in thousands)
OPERATING EXPENSES:
Operating Expenses
% of Net Sales
Twelve Months Ended
December 31,
2022
2021
Inc./ (Dec.) Inc./ (Dec.)
$
181,181 $ 158,564 $
30.8%
29.4%
22,617
-1.4%
14.3%
Excluding $5.7 million of Acquisition-related amortization and integration costs, restructuring costs and disposition of assets in
2022 and $11.9 million in Acquisition-related amortization and integration expenses in 2021, adjusted operating expenses were
$175.5 million or 28.7% of adjusted net sales in the current year and $146.6 million or 28.5% of net sales in the prior year. The
decrease in operating expenses as a percentage of net sales was driven primarily by a decrease in discretionary spending and
improved distribution center efficiencies compared with the year ago period.
($ in thousands)
INTEREST AND OTHER EXPENSES:
Other Expense
Twelve Months Ended
December 31,
2022
2021
Inc./ (Dec.) Inc./ (Dec.)
$
(18,270) $
(10,603) $
(7,667)
72.3%
25
Other expenses increased due to higher interest rates on outstanding borrowings on both our senior term loan and credit facility.
($ in thousands)
INCOME TAXES:
Income Tax Expense
Effective Tax Rate
Twelve Months Ended
December 31,
2022
2021
Inc./ (Dec.) Inc./ (Dec.)
$
5,303 $
20.6%
4,810 $
19.0%
493
1.6 %
10.2%
The effective tax rate for the year ended December 31, 2022 increased primarily due to the one-time benefit received for the year
ending December 31, 2021 arising from the release of valuation allowances on state net operating losses and an increase in
foreign tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of liquidity have been our income from operations and borrowings under our credit facilities.
Over the last several years, our principal uses of cash have been for working capital and capital expenditures to support our
growth, as well as dividend payments and share repurchases. Our working capital consists primarily of trade receivables and
inventory, offset by accounts payable and accrued expenses. Our working capital fluctuates throughout the year as a result of our
seasonal business cycle and business expansion and is generally lowest in the months of January through March of each year and
highest during the months of May through October of each year. We historically utilize our revolving credit facility to fund our
seasonal working capital requirements. As a result, balances on our revolving credit facility could fluctuate significantly
throughout the year. Our working capital increased to $244.8 million at December 31, 2022, compared to $235.1 million at the
end of the prior year.
Our capital expenditures relate primarily to projects relating to our corporate offices, property, merchandising fixtures, molds
and equipment associated with our manufacturing and distribution operations and for information technology. Capital
expenditures were $7.3 million for 2022 and $25.8 million in 2021. Capital expenditures for 2023 are anticipated to be
approximately $7.1 million.
We lease certain machinery, equipment, and manufacturing facilities under operating leases that generally provide for renewal
options. Future minimum lease payments under non-cancelable operating leases are outlined in further detail in Note 10 of our
Consolidated Financial Statements
We believe that our credit facilities coupled with cash generated from operations will provide sufficient liquidity to fund our
operations for at least the next twelve months. Our continued liquidity, however, is contingent upon future operating performance,
cash flows and our ability to meet financial covenants under our credit facility. For more information regarding our credit
facilities please see Note 9. Refer to Note 3 of our Consolidated Financial Statements for additional information regarding our
recent Acquisition.
Cash Flows and Material Cash Requirements
($ in millions)
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
Twelve Months Ended
December 31,
2022
2021
$
$
19.1 $
(1.2)
(18.1)
(0.2) $
(54.9)
(233.5)
265.9
(22.5)
Operating Activities. Our operating activities during 2022 mainly consisted of proceeds from operations offset by a decrease in
accounts payable. The principal use of net cash in 2021 was increased inventories and accounts receivable, partially offset by
increased accounts payable.
26
Investing Activities. The principal use of net cash in 2022 was related to investments in molds and equipment associated with our
manufacturing operations, investments in information technology and improvements made to our distribution facility. The
principal use of net cash in 2021 was to fund the Acquisition.
Financing Activities. The principal use of our net cash during 2022 was payments on the term loan. During 2021, financing
activities mainly consisted of proceeds from and payments on the revolving credit facility and term loan. Both debt facilities
were incurred to fund the Acquisition and other working capital requirements.
On March 8, 2021, we announced a new $7,500,000 share repurchase program, which expired on March 4, 2022. For additional
information regarding this share repurchase program, see Note 13 of our Consolidated Financial Statements. There has not been
an announcement for a new repurchase program since the expiration of the prior program in March 2022.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual obligations at December 31, 2022 resulting from financial contracts and
commitments. These amounts are generally consistent from year to year, closely reflect our levels of production, and are not
long-term in nature (less than three months). The following table does not include information on our recurring purchases of
materials for in our manufacturing operations.
Contractual Obligations at December 31, 2022:
($ in millions)
Long-term debt (Note 9)
Long-Term Taxes payable
Minimum operating lease commitments (Note 10)
Contract Liabilities (Note 16)
Consulting commitments
$
Total contractual obligations
$
Total
Less than 1
Year
259.6 $
0.2
14.3
-
0.5
274.6 $
1-3 Years 3-5 Years
6.5 $
-
6.0
-
-
12.5 $
249.8
0.2
5.1
-
-
255.1
3.3 $
-
3.2
-
0.5
7.0 $
Over 5
Years
-
-
-
-
-
-
From time to time, we enter into purchase commitments with our suppliers under customary purchase order terms. Any significant
losses implicit in these contracts would be recognized in accordance with generally accepted accounting principles. At December
31, 2022, no such losses existed.
Our ongoing business activities continue to be subject to compliance with various laws, rules and regulations as may be issued
and enforced by various federal, state and local agencies. With respect to environmental matters, costs are incurred pertaining to
regulatory compliance. Such costs have not been, and are not anticipated to become, material.
We are contingently liable with respect to lawsuits, taxes and various other matters that routinely arise in the normal course of
business. See Note 20 of our Consolidated Financial Statements for further discussion of legal matters. We do not have off-
balance sheet arrangements, financings, or other relationships with unconsolidated entities, also known as "Variable Interest
Entities." Additionally, we do not have any related party transactions that materially affect the results of operations, cash flow or
financial condition.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements as of December 31, 2022.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements are prepared in accordance with GAAP. The preparation of financial statements in
conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our
Consolidated Financial Statements. Note 1 of the Notes to Consolidated Financial Statements, which is incorporated by reference
into this MD&A, describes the significant accounting policies and estimates we use in our Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the
Consolidated Financial Statements. Estimates are made under facts and circumstances at a point in time, and changes in those
facts and circumstances could produce results substantially different from those estimates. The most significant accounting
policies and estimates and their related application are discussed below.
27
Revenue recognition
Revenue principally consists of sales to customers, and, to a lesser extent, license fees. See Note 16 of our Consolidated Financial
Statements for additional information regarding revenues.
Accounts receivable allowances
Management maintains allowances for uncollectible accounts and estimated losses resulting from the inability of our customers
to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. The allowance for uncollectible accounts is calculated based
on the relative age and status of trade receivable balances.
Sales returns and allowances
We record a reduction to gross sales based on estimated customer returns and allowances. These reductions are influenced by
historical experience, based on customer returns and allowances. The actual amount of sales returns and allowances realized may
differ from our estimates. If we determine that sales returns or allowances should be either increased or decreased, then the
adjustment would be made to net sales in the period in which such a determination is made.
Sales returns and allowances as a percentage of sales for the years ended December 31, 2022 and 2021 were 6.7% and 2.6%,
respectively.
Inventories
Management identifies slow moving inventories and estimates appropriate loss provisions related to these inventories.
Historically, these loss provisions have not been significant as the vast majority of our inventories are considered saleable and
we have been able to liquidate slow moving or obsolete inventories at amounts above cost through our factory outdoor gear stores
or through various discounts to customers and e-commerce channels. Should management encounter difficulties liquidating slow
moving or obsolete inventories, additional provisions may be necessary. Management regularly reviews the adequacy of our
inventory reserves and makes adjustments as required. See Note 5 of our Consolidated Financial Statements for additional
information regarding inventories.
Intangible assets
Intangible assets, including goodwill, trademarks and patents, are reviewed for impairment annually, and more frequently, if
necessary. We perform such testing of indefinite-lived intangible assets in the fourth quarter of each year or as events occur or
circumstances change that would more likely than not reduce the fair value of the assets below their carrying amount. We
determined the fair values of the indefinite-lived intangibles were in excess of their carrying values. There is no goodwill
allocated to our Contract Manufacturing segment. As of December 31, 2022, goodwill allocated to our Wholesale and Retail
reporting segments was $25.4 million and $24.8 million, respectively. See Note 1 and Note 7 of our Consolidated Financial
Statements for additional information regarding intangible assets and the annual impairment analysis.
Income taxes
Management records a valuation allowance to reduce its deferred tax assets for a portion of state and local income tax net
operating losses that it believes may not be realized. We have considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for a valuation allowance, however, in the event we were to determine that we would
not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be
charged to income in the period such determination was made. For additional information see Note 12 of our Consolidated
Financial Statements.
RECENT FINANCIAL ACCOUNTING PRONOUNCEMENTS
Note 2 to Consolidated Financial Statements discusses new accounting pronouncements adopted during 2021 and the expected
impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new
accounting standards materially affect financial condition, results of operations, or liquidity, the impacts are discussed in the
applicable section of this MD&A and the Notes to Consolidated Financial Statements.
28
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report, including Management’s Discussion and Analysis of Financial Conditions and Results of Operations, contains
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended, which are intended to be covered by the safe harbors created thereby. Those
statements include, but may not be limited to, all statements regarding our and management’s intent, belief, expectations, such
as statements concerning our future profitability and our operating and growth strategy. Words such as "believe," "anticipate,"
"expect," "will," "may," "should," "intend," "plan," "estimate," "predict," "potential," "continue," "likely," "would," "could" and
similar expressions are intended to identify forward-looking statements. Investors are cautioned that all forward-looking
statements involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer
demand, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail
trends, the loss or disruption of our manufacturing and distribution operations, cyber security breaches or disruption of our digital
systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption
"Item 1A, Risk Factors" in this Annual Report on Form 10-K and other factors detailed from time to time in our filings with the
Securities and Exchange Commission. Although we believe that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the
forward-looking statements included herein will prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved. We assume no obligation to update any forward-looking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, our financial position and results of operations are routinely subject to a variety of risks,
including market risk associated with interest rate movements on borrowings and currency rate movements on non-U.S. dollar
denominated assets, liabilities and cash flows. We are also subject to commodity pricing risk via changes in the price of materials
used in our manufacturing process. We regularly assess these risks and have established policies and business practices that
should mitigate a portion of the adverse effect of these and other potential exposures.
Interest Rate Risk
Our primary exposure to market risk includes interest rate fluctuations in connection with our senior term facility and revolving
credit facility. Our senior term and revolving credit facilities are tied to changes in applicable interest rates, including SOFR,
company performance and total borrowings under our revolving credit facility.
As of December 31, 2022, we had $259.6 million of debt consisting of $116.3 million under our senior term facility and $143.3
million under our revolving credit facility. A hypothetical increase of 1% in the interest rate on the borrowings under our credit
facilities would have increased interest expense by approximately $2.6 million. For additional information about our credit
facilities see Note 9.
We do not hold any market risk sensitive instruments for trading purposes.
We do not have any interest rate management agreements as of December 31, 2022.
Commodity Risk
We are also exposed to changes in the price of commodities used in our manufacturing operations. However, commodity price
risk related to our current commodities is not material as price changes in commodities can generally be passed along to the
customer.
Foreign Exchange Risk
We face market risk to the extent that changes in foreign currency exchange rates affect our foreign assets, liabilities and
inventory purchase commitments. We regularly assess these risks and have established policies and business practices that should
mitigate a portion of the adverse effect of these and other potential exposures.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ROCKY BRANDS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Description
Report of Independent Registered Public Accounting Firm (PCAOB ID: 358) ................................................................
Consolidated Balance Sheets as of December 31, 2022 and 2021 .....................................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021, and 2020 ..................................
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2022, 2021, and 2020 .................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 .................................
Page
31
33
34
35
36
Note 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION ....................................................................
Note 2. ACCOUNTING STANDARDS UPDATES .........................................................................................................
Note 3. BUSINESS ACQUISITION .................................................................................................................................
Note 4. ASSET SALE........................................................................................................................................................
Note 5. INVENTORIES ....................................................................................................................................................
Note 6. PROPERTY, PLANT, AND EQUIPMENT .........................................................................................................
Note 7. IDENTIFIED INTANGIBLE ASSETS ................................................................................................................
Note 8. OTHER ASSETS ..................................................................................................................................................
Note 9. LONG-TERM DEBT ............................................................................................................................................
Note 10. LEASES ..............................................................................................................................................................
Note 11. BENEFIT PLAN .................................................................................................................................................
Note 12. TAXES ................................................................................................................................................................
Note 13. SHAREHOLDERS' EQUITY ............................................................................................................................
Note 14. SHARE-BASED COMPENSATION .................................................................................................................
Note 15. EARNINGS PER SHARE ..................................................................................................................................
Note 16. REVENUE ..........................................................................................................................................................
Note 17. SUPPLEMENTAL CASH FLOW INFORMATION .........................................................................................
Note 18. SEGMENT INFORMATION .............................................................................................................................
Note 19. RESTRUCTURING CHARGES ........................................................................................................................
Note 20. COMMITMENTS AND CONTINGENCIES ....................................................................................................
37
40
41
42
43
43
43
45
45
46
48
49
51
51
52
53
55
55
56
57
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Rocky Brands, Inc. and Subsidiaries
Nelsonville, Ohio
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rocky Brands, Inc. and Subsidiaries (the “Company”) as of
December 31, 2022 and 2021, and the related consolidated statements of operations, shareholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2022, and the related notes and the financial statement schedule
listed in the index at Item 15(a)(2), (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 10, 2023 expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
31
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involve our especially challenging, subjective, or
complex judgment. The communication of the critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Description of the Matter
How We Addressed the
Matter in Our Audit
Valuation of Indefinite-Lived Identified Intangibles in Conjunction with Annual Impairment
Testing
At December 31, 2022, the Company’s indefinite-lived intangible assets were approximately
$178.3 million, which included $128.1 million of trade names and trademarks and $50.2
million of goodwill. As discussed in Note 1 to the financial statements, indefinite-lived
intangible assets are tested for potential impairment annually or when conditions indicate
impairment may have occurred. This test was performed in the fourth quarter of 2022.
Auditing management’s indefinite-lived intangible assets, including goodwill, was
challenging because there is significant judgment required in determining the methodologies
and assumptions used to estimate the fair values of the Company’s goodwill by reporting
unit, and trade names and trademarks by brand. In particular, the fair value estimates were
sensitive to significant judgment assumptions including future cash flows, long-term growth
rates of the business, financial projections, operating margins, weighted average cost of
capital and other factors such as: discount rates, royalty rates, cost of capital, and market
multiples. These estimates and assumptions require management’s judgment, and changes to
these estimates and assumptions could materially affect the determination of fair value and/or
impairment for each of the Company’s indefinite-lived intangible assets.
We obtained an understanding, evaluated the design and tested the operating effectiveness
of controls over the Company’s intangible asset impairment review process. To test the
estimated fair value of the Indefinite-Lived Intangible Assets, we performed audit procedures
that included, among others, involving our valuation specialists in evaluating the
methodologies used and significant assumptions described above, and testing the underlying
data used by the Company for completeness and accuracy. We compared the significant
assumptions used by management to current industry and economic trends, recent historical
performance, changes to the reporting unit’s business model and other relevant factors. We
evaluated the reasonableness of the Company’s financial projections used in the
analysis. We assessed the historical accuracy of management’s estimates and significant
assumptions to evaluate the changes in the fair value of the reporting unit that would result
from changes in the assumptions. We evaluated the incorporation of the applicable
assumptions into the model and tested the model’s computational accuracy and performed a
sensitivity analysis on certain key assumptions.
We have served as the Company's auditor since 2007.
/s/ Schneider Downs & Co., Inc.
Columbus, Ohio
March 10, 2023
32
Rocky Brands, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31, December 31,
2022
2021
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables – net
Contract receivables
Other receivables
Inventories – net
Income tax receivable
Prepaid expenses
Total current assets
LEASED ASSETS
PROPERTY, PLANT & EQUIPMENT – net
GOODWILL
IDENTIFIED INTANGIBLES – net
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
Contract liabilities
Current Portion of Long-Term Debt
Accrued expenses:
Salaries and wages
Taxes – other
Accrued freight
Commissions
Accrued duty
Accrued interest
Income tax payable
Other
Total current liabilities
LONG-TERM DEBT
LONG-TERM TAXES PAYABLE
LONG-TERM LEASE
DEFERRED INCOME TAXES
DEFERRED LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY:
Common stock, no par value;
$
$
$
5,719 $
94,953
-
908
235,400
-
4,067
341,047
11,014
57,359
50,246
121,782
942
582,390 $
69,686 $
-
3,250
1,253
1,325
2,413
1,934
6,764
2,822
1,172
5,675
96,294
253,646
169
8,216
8,006
586
366,917
5,909
126,807
1,062
242
232,464
4,294
4,507
375,285
11,428
59,989
50,641
126,315
917
624,575
114,632
1,062
3,250
3,668
849
1,798
2,447
5,469
2,133
-
4,828
140,136
266,794
169
8,809
10,293
519
426,720
25,000,000 shares authorized; issued and outstanding December 31, 2022 - 7,339,011;
December 31, 2021 - 7,302,199
Retained earnings
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See notes to Consolidated Financial Statements
69,752
145,721
215,473
582,390 $
68,061
129,794
197,855
624,575
$
33
Rocky Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
NET SALES
COST OF GOODS SOLD
GROSS MARGIN
Year Ended
December 31,
2021
2022
$
615,475 $
390,256
225,219
514,227 $
319,691
194,536
2020
277,309
172,574
104,735
OPERATING EXPENSES
181,181
158,564
77,565
INCOME FROM OPERATIONS
44,038
35,972
27,170
INTEREST AND OTHER EXPENSES
(18,270)
(10,603)
(205)
INCOME BEFORE INCOME TAX EXPENSE
25,768
25,369
26,965
INCOME TAX EXPENSE
5,303
4,810
6,001
NET INCOME
INCOME PER SHARE
Basic
Diluted
$
20,465 $
20,559 $
20,964
$
$
2.80 $
2.78 $
2.82 $
2.77 $
2.87
2.86
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic
Diluted
See notes to Consolidated Financial Statements
7,317
7,369
7,283
7,409
7,304
7,337
34
Rocky Brands, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Equity
(In thousands, except per share amounts)
Common Stock and
Additional Paid-in Capital
Shares
Outstanding Amount
Accumulated
Other
Comprehensive Retained Shareholders'
Income
Earnings
Equity
Total
BALANCE - December 31, 2019
7,355 $
67,993
- $
96,663 $
164,656
Net income
Dividends paid on common stock ($0.56 per
share)
Repurchase of common stock
Stock issued for options exercised, including tax
benefits
Stock compensation expense
BALANCE - December 31, 2020
Net income
Dividends paid on common stock ($0.59 per
share)(1)
Repurchase of common stock
Stock issued for options exercised, including tax
benefits
Stock compensation expense
BALANCE - December 31, 2021
Net income
Dividends paid on common stock ($0.62 per
share)
Repurchase of common stock
Stock issued for options exercised, including tax
benefits
Stock compensation expense
BALANCE - December 31, 2022
(129) $
(2,938)
8
14
7,248 $
136
780
65,971
$
20,964 $
20,964
(4,093)
(4,093)
(2,938)
-
-
- $ 113,534 $
136
780
179,505
$
20,559 $
20,559
(4,299)
(4,299)
-
47 $
7
7,302 $
825
1,265
68,061
-
-
- $ 129,794 $
825
1,265
197,855
-
-
26 $
11
7,339 $
461
1,230
69,752
$
20,465 $
20,465
(4,538)
-
(4,538)
-
-
-
- $ 145,721 $
461
1,230
215,473
(1) Quarterly dividend was increased from $0.14 per share to $0.155 per share in the third quarter of 2021.
See notes to Consolidated Financial Statements
35
Rocky Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash used in operating
Year Ended
December 31,
2021
2020
2022
$
20,465 $
20,559 $
20,964
activities:
Depreciation and amortization
Amortization of debt issuance costs
Provision for bad debts
Deferred income taxes
(Gain) Loss on disposal of assets
Stock compensation expense
Change in assets and liabilities:
Receivables
Contract receivables
Inventories
Other current assets
Other assets
Accounts payable
Accrued and other liabilities
Income taxes
Contract liabilities
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets
Acquisition of business, net of cash acquired
Proceeds from sales of fixed assets
Proceeds from the sale of assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility
Repayments on revolving credit facility
Proceeds from term loan
Repayments on term loan
Debt issuance costs
Proceeds from stock options
Repurchase of common stock
Dividends paid on common stock
Net cash (used in) provided by financing activities
12,320
853
3,254
(2,209)
(789)
1,230
28,222
1,062
(4,986)
440
389
(45,921)
468
5,387
(1,062)
19,123
(6,702)
-
-
5,468
(1,234)
37,492
(40,263)
-
(11,231)
-
461
-
(4,538)
(18,079)
11,342
675
302
2,022
41
1,265
(42,245)
4,108
(114,226)
(9,791)
(152)
78,626
2,432
(5,313)
(4,520)
(54,875)
(21,055)
(212,408)
-
-
(233,463)
180,072
(34,000)
130,000
(2,438)
(4,266)
825
-
(4,299)
265,894
5,240
-
452
164
28
780
(2,725)
(424)
(845)
(993)
(80)
4,459
2,566
1,019
836
31,441
(11,716)
-
5
-
(11,711)
20,000
(20,000)
-
-
-
136
(2,938)
(4,093)
(6,895)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(190)
(22,444)
12,835
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD
END OF PERIOD
See notes to Consolidated Financial Statements
$
5,909
5,719 $
28,353
5,909 $
15,518
28,353
36
Notes to the Consolidated Financial Statements
ROCKY BRANDS, INC. AND SUBSIDIARIES
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Principles of Consolidation - The accompanying Consolidated Financial Statements include the accounts of Rocky Brands, Inc.
("Rocky Brands") and its wholly-owned subsidiaries, Lifestyle Footwear, Inc. ("Lifestyle"), Five Star Enterprises Ltd. ("Five
Star"), Rocky Brands Canada, Inc. ("Rocky Brands Canada"), Rocky Brands US, LLC, Rocky Brands International, LLC, Lehigh
Outfitters, LLC, US Footwear Holdings, LLC, Rocky Brands (Australia) Pty Ltd., Mexico FW Holdings, S. de R.L. de C.V.,
Rocky Footwear (Chuzhou) Co. Ltd., UK Footwear Holdings Limited and Rocky Outdoor Gear Store, LLC (collectively referred
to as the "Company"). All inter-company transactions have been eliminated.
Business Activity - We are a leading designer, manufacturer and marketer of premium quality footwear marketed under a
portfolio of well recognized brand names including Rocky, Georgia Boot, Durango, Lehigh, Muck, XTRATUF, Servus, Ranger
and the licensed brand Michelin. Our brands have a long history of representing high quality, comfortable, functional and durable
footwear and our products are organized around six target markets: outdoor, work, duty, commercial military, western, and
military. In addition, as part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel
and accessories that we believe leverage the strength and positioning of each of our brands.
We report our segment information in accordance with provisions of the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 280, Segment Reporting. We evaluate business performance based upon
several metrics, using segment profit as the primary financial measure.
Each of our reporting segments continue to employ consistent accounting policies. As a result of this assessment, we now report
our activities in the following three reporting segments: Wholesale, Retail and Contract Manufacturing. Wholesale includes sales
of footwear and accessories to several classifications of retailers, including sporting goods stores, outdoor specialty stores, online
retailers, marine stores, independent retailers, mass merchants, retail uniform stores, and specialty safety shoe stores. Our Retail
business includes direct sales of our products to consumers through our e-commerce websites, marketplaces, our Rocky Outdoor
Gear Store, and Lehigh businesses. Contract Manufacturing includes sales to the U.S. Military, private label sales and any sales
to customers in which we are contracted to manufacture or source a specific footwear product for a customer. See Note 18 for
further information.
Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - We consider all highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. Balances may exceed federally insured limits. We also hold cash outside of the U.S. that is not
federally insured.
Trade Receivables - Trade receivables are presented net of the related allowance for uncollectible accounts of
approximately $3.5 million and $0.6 million at December 31, 2022 and 2021, respectively. We record the allowance based on
historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect
due to various criteria including pending bankruptcy. However, estimates of the allowance in any future period are inherently
uncertain and actual allowances may differ from these estimates. If actual or expected future allowances were significantly greater
or less than established reserves, a reduction or increase to bad debt expense would be recorded in the period this determination
was made. Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have
pursued all reasonable efforts to collect on the account. In accordance with ASC 606, the return reserve liability netted against
trade receivables was $2.1 million and $1.7 million at December 31, 2022 and 2021, respectively.
Concentration of Credit Risk - We have significant transactions with a large number of customers. No customer represented
10% of net trade receivables as of December 31, 2022 and 2021. Our exposure to credit risk is impacted by the economic climate
affecting the retail shoe industry. We manage this risk by performing ongoing credit evaluations of our customers, maintaining
reserves for potential uncollectible accounts and utilizing credit insurance for some of our key customers.
37
Supplier and Labor Concentrations - We purchase raw materials from a number of domestic and foreign sources. We produce
a portion of our shoes and boots in our Dominican Republic, Puerto Rico, Illinois and China operations. We are not aware of any
governmental or economic restrictions that would alter these current operations.
We source a significant portion of our footwear, apparel and gloves from manufacturers in Asia, and primarily in China and
Vietnam. We are not aware of any governmental or economic restrictions that would alter our current sourcing operations.
Inventories - Inventories are valued at the lower of cost, determined on a first-in, first-out (FIFO) basis, or net realizable value
(NRV). Reserves are established for inventories when the NRV is deemed to be less than its cost based on our periodic estimates
of NRV.
Property, Plant and Equipment - We record fixed assets at historical cost and generally utilizes the straight-line method of
computing depreciation for financial reporting purposes over the estimated useful lives of the assets as follows:
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Lasts, dies, and patterns
Years
5 - 40
3 - 8
3 - 8
3
For income tax purposes, we generally compute depreciation utilizing accelerated methods.
Goodwill - Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible
assets of acquired businesses. Goodwill arose from the Acquisition and largely consists of the workforce acquired, expected cost
synergies and economies of scale resulting from the business combination. The amount of our goodwill that is deductible for tax
purposes is $49.4 million.
GAAP has established guidance for reporting information about a company's operating segments, including disclosures related
to a company's products and services, geographic areas and major customers. We monitor and review our segment reporting
structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our
reportable segments, as well as our reporting units. As previously stated, our operations represent three reporting segments,
Wholesale, Retail and Contract Manufacturing. Goodwill impairment analysis will be performed for our Wholesale and Retail
reporting segments. There is no goodwill allocated to our Contract Manufacturing segment. As of December 31, 2022, goodwill
allocated to our Wholesale and Retail reporting segments was $25.4 million and $24.8 million, respectively.
Goodwill is subject to impairment tests at least annually. We review the carrying amounts of goodwill by reporting unit at least
annually, or when indicators of impairment are present, to determine if goodwill may be impaired. We include assumptions about
the expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value
of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets
to the carrying value. Goodwill is considered impaired if the recorded value exceeds the fair value.
We may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill is less than
its carrying value. We would not be required to quantitatively determine the fair value of goodwill unless we determine, based
on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. Future cash flows of
the individual indefinite-lived intangible assets are used to measure their fair value after consideration of certain assumptions,
such as forecasted growth rates and cost of capital, which are derived from internal projection and operating plans. We perform
our annual testing for goodwill at the beginning of the fourth quarter of each fiscal year, starting with our fiscal year ended
December 31, 2021.
Identified intangible assets - Identified intangible assets consist of indefinite lived trademarks and definite lived
trademarks, patents and customer relationships. Indefinite lived intangible assets are not amortized.
If events or circumstances change, a determination is made by management, in accordance with the accounting standard for
"Property, Plant and Equipment" to ascertain whether property, equipment and certain finite-lived intangibles have been impaired
based on the sum of expected future undiscounted cash flows from operating activities. If the estimated net cash flows are less
than the carrying amount of such assets, we will recognize an impairment loss in an amount necessary to write down the assets
to fair value as determined from expected future discounted cash flows.
38
In accordance with the accounting standard for "Intangibles – Goodwill and Other", we test intangible assets with indefinite lives
for impairment annually or when conditions indicate impairment may have occurred. We perform such testing of our indefinite-
lived intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount. See Note 7 for more information.
Leases - Our leases primarily consist of office buildings, distribution centers, manufacturing facilities, and equipment. We lease
assets in the normal course of business to meet our current and future needs while providing flexibility to our operations. We enter
into contracts with third parties to lease specifically identified assets. Most of our leases have contractually specified renewal
periods. Our operating leases expire at various dates through 2027, and contain various provisions for rental adjustments renewal
provisions for varying periods. We determine the lease term for each lease based on the terms of each contract and factor in
renewal and early termination options if such options are reasonably certain to be exercised.
Under FASB ASC Topic 842, Leases, we have elected the practical expedient to account for lease components and nonlease
components associated with individual leases as a single lease component for all leases. In addition, we have elected to account
for multiple lease components as a single lease component. Our leases may include variable lease costs such as payments based
on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other
service costs that are paid directly to the lessor under terms of the lease. We recognize variable lease payments when the amounts
are incurred and determinable. We have elected to account for leases of twelve months or less as short-term leases and
accordingly do not recognize a right-of-use asset or lease liability for these leases. We recognize lease expense for these leases
on a straight-line basis over the lease term.
Comprehensive Income - Comprehensive income includes changes in equity that result from transactions and economic events
from non-core operations. Comprehensive income is composed of two subsets – net income and other comprehensive income.
There were no material other comprehensive income items therefore no Statements of Comprehensive Income were presented.
Advertising - We expense advertising costs as incurred. Advertising expense was approximately $15.4 million, $17.9 million
and $8.4 million for 2022, 2021 and 2020, respectively. The decrease from 2021 to 2022 is due to a decrease in discretionary
spending. The increase from 2020 to 2021 in advertising expense was attributed to the Acquired Brands.
Shipping Costs - All shipping costs billed to customers have been included in net sales. All outbound shipping costs to customers
have been included in operating expenses and totaled approximately $38.5 million, $25.1 million and $10.5 million in
2022, 2021 and 2020, respectively. The increase in shipping costs from 2021 to 2022 is due to increased freight rates, increased
sales and product mix. The increase in shipping costs from 2020 to 2021 was due to the Acquired Brands.
Stock Compensation Expense - We recognize compensation expense for awards of stock options, restricted stock units
("RSUs"), and director stock units based on the fair value on the grant date and on a straight-line basis over the requisite service
period for the awards that are expected to vest, with forfeitures estimated based on our historical experience and future
expectations. Stock-based compensation is included in operating expenses in the consolidated statements of operations.
Fair Value Measurements – The fair value accounting standard defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. This standard clarifies how to measure fair value as permitted
under other accounting pronouncements.
The fair value accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants at the measurement date. This standard also establishes a three-level fair value hierarchy that prioritizes the
inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use
of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● Level 1 – Quoted prices in active markets for identical assets or liabilities.
● Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets
and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data.
● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
39
The fair values of cash and cash equivalents, receivables, and payables approximated their carrying values because of the short-
term nature of these instruments. Receivables consist primarily of amounts due from our customers, net of allowances, amounts
due from employees (salespersons’ advances in excess of commissions earned and employee travel advances); other customer
receivables, net of allowances; and expected insurance recoveries. The carrying amounts of our long-term credit facilities and
other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the
marketplace during the year. The fair value of our revolving line of credit is categorized as Level 2.
Deferred Compensation Plan Assets and Liabilities
On December 14, 2018, our Board of Directors adopted the Rocky Brands, Inc. Executive Deferred Compensation Plan (the "
Executive Deferred Compensation Plan"), which became effective January 1, 2019. The Executive Deferred Compensation Plan
is an unfunded nonqualified deferred compensation plan in which certain executives are eligible to participate. The deferrals are
held in a separate trust, which has been established for the administration of the Executive Deferred Compensation Plan. The
trust assets and liabilities are classified as trading securities within prepaid expenses and other current assets and deferred
liabilities, respectively in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to
operating expenses in the accompanying consolidated statements of operations. The fair value is based on unadjusted quoted
market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Effective August 18, 2020, our Board of Directors adopted a second deferred compensation plan (the "Dominican Plan"). The
Dominican Plan is an unfunded nonqualified deferred compensation plan for key employees at our Dominican Republic
manufacturing facility. The funds are held in a separate trust, which has been established for the administration of the Dominican
Plan. The trust liabilities are classified as trading securities within deferred liabilities in the accompanying consolidated balance
sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements
of operations. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume
and frequency (Level 1).
2. ACCOUNTING STANDARDS UPDATES
Recently Issued Accounting Pronouncements
Rocky Brands, Inc. is currently evaluating the impact of certain ASUs on its Consolidated Financial Statements or Notes to the
Consolidated Financial Statements:
Standard
Description
ASU 2016-13,
Measurement of Credit
Losses on Financial
Instruments
The pronouncement seeks to provide financial statement
users with more decision-useful information about the
expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity
at each reporting date by replacing the incurred loss
impairment methodology in current U.S. GAAP with a
methodology that reflects expected credit losses and
requires consideration of a broader range of reasonable
and supportable information to inform credit loss
estimates.
Accounting Standards Adopted in 2021
Anticipated
Adoption
Period
Effect on the financial
statements or other
significant matters
Q1 2023
We do not anticipate that
adopting this standard will
have a material impact on
our consolidated financial
statements.
Standard
Description
ASU 2019-12, Income Taxes
(Topic 740): Simplifying the
Accounting for Income Taxes
This pronouncement is intended to simplify various
aspects related to accounting for income taxes. ASU
2019-12 removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends
existing guidance to improve consistent application.
Effect on the financial statements
or other significant matters
We adopted the new standard in
Q1 2021 and the standard did not
have a significant impact on our
Consolidated Financial Statements.
40
3. BUSINESS ACQUISITION
The Performance and Lifestyle Footwear Business of Honeywell International Inc.
On January 24, 2021, we entered into a Purchase Agreement (the "Purchase Agreement") with certain subsidiaries of Honeywell
International Inc. (collectively, "Honeywell"), to purchase Honeywell's performance and lifestyle footwear business, including
brand names, trademarks, assets and liabilities associated with Honeywell's performance and lifestyle footwear business (the
"Acquisition") for an aggregate, adjusted purchase price of $212 million.
On March 15, 2021 (the "Acquisition Date"), pursuant to the terms and conditions set forth in the Purchase Agreement, we
completed the Acquisition for an aggregate preliminary closing price of approximately $207 million, net of cash acquired, based
on preliminary working capital and other adjustments. Upon a final agreement of net working capital as of the Acquisition Date,
we owed Honeywell an additional $5.4 million. The Acquisition was funded through cash on hand and borrowings under two
new credit facilities. See Note 9 for information regarding the two credit facilities.
The Acquisition expanded our brand portfolio to include Muck, XTRATUF, Servus, Ranger, and NEOS brands (the "Acquired
Brands"). We acquired 100% of the voting interests of certain subsidiaries and additional assets comprising the performance and
lifestyle footwear business of Honeywell with the Acquisition. On September 30, 2022, we completed the sale of the NEOS
brand and the related assets. See Note 4 for additional information.
Through the Acquisition, we have greatly enhanced our powerful portfolio of footwear brands and significantly increased our
sales and profitability. We acquired a well-run business with a corporate culture and a customer base similar to ours, which
provides meaningful growth opportunities within our existing product categories as well as an entry into new market segments.
Its innovative and authentic product collections complement our existing offering with minimal overlap, which we believe will
allow us to strengthen our wholesale relationships and serve a wider consumer audience. At the same time, we plan to leverage
our existing advanced fulfillment capabilities to improve distribution of the Acquired Brands to wholesale customers and
accelerate direct-to-consumer penetration.
In connection with the Acquisition, we also entered into employment agreements with seven key employees from the
performance and lifestyle footwear business of Honeywell, pursuant to which, among other things, we agreed to grant 25,000
non-qualified stock options in the aggregate to the seven employees as an inducement for continuing their employment with us.
We acquired multiple leases through the Acquisition including the lease of our Rock Island and China manufacturing
facilities and an office building lease in Westwood, Massachusetts. We closed the office in Westwood, Massachusetts on
December 31, 2022.
The Acquisition contributed net sales of $242.8 million to our consolidated operating results for the year ended December 31,
2022. The Acquisition contributed net income of $9.3 million to our consolidated operating results for the year ended December
31, 2022.
Acquisition-related costs
Costs incurred to complete and integrate the Acquisition are expensed as incurred and included in "operating expenses" in the
accompanying consolidated statements of operations. During the years ended December 31, 2022, 2021, and 2020 there were
approximately $3.5 million, $11.9 million and $0.7 million, respectively, of acquisition-related costs recognized. These costs
represent investment banking fees, legal and professional fees, transaction fees, integration costs, amortization and consulting
fees associated with the Acquisition.
Purchase Price Allocation
The Acquisition has been accounted for under the business combinations accounting guidance. As a result, we have applied
acquisition accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their
fair values as of the Acquisition Date. The aggregate closing price noted above was allocated to the major categories of assets
acquired and liabilities assumed based on their fair values at the Acquisition Date using primarily Level 2 and Level 3 inputs.
These Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates. Additionally, estimated
fair values are based, in part, upon outside valuation for certain assets, including specifically identified intangible assets.
41
The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to
goodwill is not finalized and is subject to adjustment until the final valuation related to assets acquired and liabilities assumed is
obtained (up to one year from the Acquisition Date).
The following table summarizes the consideration paid and estimated fair value of the assets acquired and liabilities assumed as
of the Acquisition Date.
($ in thousands)
Cash
Accounts receivable (1)
Inventories (2)
Property, plant and equipment
Goodwill (3)
Intangible assets
Other assets
Accounts payable
Accrued expenses
Total identifiable net assets
Cash acquired
Total cash paid, net of cash acquired
Fair Value
2,655
36,734
41,057
16,243
50,246
98,620
1,250
(18,108)
(13,634)
215,063
(2,655)
212,408
$
$
(1) The recorded amount for accounts receivable considers expected uncollectible amounts of approximately $0.6 million in its
determination of fair value.
(2) Fair value of finished goods inventories included step up value of approximately $3.5 million, all of which was expensed
during the twelve months ended December 31, 2021, and is included in "Cost of Goods Sold" in the accompanying consolidated
statement of operations.
(3) Goodwill largely consists of the acquired workforce, expected costs synergies and economies of scale resulting from the
Acquisition.
Unaudited Pro Forma Financial Information
The following unaudited pro forma results of operations assume that the Acquisition occurred at the beginning of the periods
presented. These unaudited pro forma results are presented for information purposes only and are not necessarily indicative of
what the results of operations would have been if the Acquisition had occurred at the beginning of the periods presented, nor are
they indicative of the future results of operations. The pro forma results presented below are adjusted for the removal of the step
up value of finished goods inventory associated with the Acquisition of approximately $3.5 million for the year ended December
31, 2021. The pro forma results presented below are also adjusted for the removal of acquisition-related costs of approximately
$3.5 million, $11.9 million and $0.7 million for the twelve months ended December 31, 2022, 2021, and 2020, respectively.
($ in thousands, except per share amount)
Net sales
Net income
Diluted earnings per share
4. ASSET SALE
Year Ended December 31,
2021
2020
2022
$
$
$
615,475 $
23,250 $
3.16 $
552,905 $
40,248 $
5.43 $
482,562
41,726
5.69
On September 30, 2022, we completed the sale of the NEOS brand and related assets to certain entities controlled by SureWerx
pursuant to terms of an asset purchase agreement dated September 30, 2022. Total consideration for this transaction was
approximately $5.8 million, of which $5.5 million was received at closing. The remaining $0.3 million was deposited in escrow
and shall be managed and paid out in accordance with the terms of the asset purchase agreement and the escrow agreement. The
sale of the NEOS brand included the sale of inventory, fixed assets, customer relationships, tradenames, all of which related to
our Wholesale segment. This transaction resulted in the sale of inventory of approximately $3.6 million recorded in net sales and
approximately $2.4 million recorded in costs of goods sold in the accompanying condensed consolidated Statement of Operations
for the twelve months ended December 31, 2022. Fixed assets, customer relationships and tradenames sold in connection with
the sale of the NEOS brand resulted in reduction of operating expenses of approximately $0.7 million recorded in the
accompanying unaudited condensed consolidated statement of operations for the twelve months ended December 31, 2022.
42
5. INVENTORIES
Inventories are comprised of the following:
($ in thousands)
Raw materials
Work-in-process
Finished goods
Total
December 31, December 31,
2022
2021
$
$
16,541 $
933
217,926
235,400 $
20,933
1,316
210,215
232,464
In accordance with ASC 606, the returns reserve asset included within inventories was approximately $1.1 million and
$0.9 million at December 31, 2022 and December 31, 2021, respectively.
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is comprised of the following:
($ in thousands)
Land
Buildings
Machinery and equipment
Furniture and fixtures
Lasts, dies and patterns
Construction work-in-progress
Total
Less - accumulated depreciation
December 31, December 31,
2022
2021
$
972 $
37,601
60,942
2,022
13,973
11,798
127,308
(69,949)
972
36,456
57,304
2,548
12,360
14,452
124,092
(64,103)
Net Property, Plant and Equipment
$
57,359 $
59,989
We incurred approximately $9.2 million, $8.8 million, and $5.2 million in depreciation expense for 2022, 2021, and 2020,
respectively.
7. IDENTIFIED INTANGIBLE ASSETS
A schedule of identified intangible assets is as follows:
($ in thousands)
December 31, 2022
Trademarks
Wholesale (1)
Retail (2)
Patents
Customer relationships (3)
Total Intangibles
Gross
Amount
Accumulated
Amortization
Carrying
Amount
$
$
71,979
9,220
895 $
46,006
128,100 $
- $
-
826
5,492
6,318 $
71,979
9,220
69
40,514
121,782
(1) $45.4 million of the total resulted from our Acquisition that occurred on March 15, 2021. NEOS trademarks were reduced
from approximately $0.6 million to zero at December 31, 2022 as a result of the sale of the NEOS brand (see Note 4).
(2) $6.3 million of the total resulted from our Acquisition that occurred on March 15, 2021.
(3) Resulted from our Acquisition that occurred on March 15, 2021. Customer relationships relating to the NEOS brand of
approximately $0.9 million and related amortization of approximately $0.1 million was reduced to zero at December 31, 2022
as a result of the sale of the NEOS brand (see Note 4).
43
($ in thousands)
December 31, 2021
Trademarks
Wholesale (1)
Retail (2)
Patents
Customer relationships (3)
Total Intangibles
Gross
Amount
Accumulated
Amortization
Carrying
Amount
$
$
72,579
9,220
895 $
46,900
129,594 $
- $
-
804
2,475
3,279 $
72,579
9,220
91
44,425
126,315
(1) $45.4 million of the total resulted from our Acquisition that occurred on March 15, 2021.
(2) $6.3 million of the total resulted from our Acquisition that occurred on March 15, 2021.
(3) Resulted from our Acquisition that occurred on March 15, 2021.
The weighted average remaining life for our patents is 7.1 years.
A schedule of approximate actual and expected amortization expense related to finite-lived intangible assets is as follows:
($ in thousands)
Amortization
Expense
2023
2024
2025
2026
2027
2028+
3,011
3,074
3,070
3,067
3,064
25,297
Indefinite lived intangible assets, such as trademarks are reviewed for impairment testing annually, more frequently if necessary.
We perform such testing of indefinite-lived intangible assets in the fourth quarter of each year or as events occur or circumstances
change that would more likely than not reduce the fair value of the asset below its carrying amount. Fair value of other indefinite-
lived intangible assets is determined using the relief from royalty method. Definite lived intangible assets, such as patents and
customer relationships are only reviewed for impairment if a triggering event has occurred to indicate that its fair value of the
asset is below its carrying value.
In assessing whether indefinite-lived intangible assets are impaired, we must make certain estimates and assumptions regarding
future cash flows, long-term growth rates of our business, operating margins, weighted average cost of capital and other factors
such as: discount rates, royalty rates, cost of capital, and market multiples to determine the fair value of our assets. These
estimates and assumptions require management’s judgment, and changes to these estimates and assumptions could materially
affect the determination of fair value and/or impairment for each of our indefinite-lived intangible assets. Future events could
cause us to conclude that indications of intangible asset impairment exist. Impairment may result from, among other things,
deterioration in the performance of our business, adverse market conditions, adverse changes in applicable laws and regulations,
competition, or the sale or disposition of a reporting segment. Any resulting impairment loss could have a material adverse impact
on our financial condition and results of operations.
2022 and 2021 Impairment Testing
We evaluate our finite and indefinite lived intangible assets under the terms and provisions of the accounting standards for
"Intangibles - Goodwill and Other" and "Property, Plant and Equipment." These pronouncements require that we compare the
fair value of an intangible asset with its carrying amount. The results of our 2022 and 2021 finite and indefinite-lived intangible
impairment testing indicated that all reporting unit intangible asset fair values exceed their respective carrying values.
44
8. OTHER ASSETS
Other assets consist of the following:
($ in thousands)
Long-term deposits
NQDC plan assets
Total
9. LONG-TERM DEBT
December 31, December 31,
2022
2021
$
$
607 $
335
942 $
606
311
917
On March 15, 2021, we entered into a senior secured term loan facility ("Term Facility") with TCW Asset Management
Company, LLC, as agent, for the lenders party thereto in the amount of $130 million. The Term Facility provided for quarterly
payments of principal and bears interest of LIBOR plus 7.00% through June 30, 2021. After this date, interest was assessed
quarterly based on our total leverage ratio. The total leverage ratio is calculated as (a) Total Debt to (b) EBITDA. If our total
leverage ratio is greater than or equal to 4.00, the effective interest rate will be SOFR plus 7.50% (or at our option, Prime Rate
plus 6.50%). If our total leverage ratio is less than 4.00, but greater than 3.00, the effective interest rate will be SOFR plus 7.00%
(or at our option, Prime Rate plus 6.00%). If our total leverage ratio is less than 3.00, the effective interest rate will be SOFR
plus 6.50% (or at our option, Prime Rate plus 5.50%). The Term Facility also has a SOFR floor rate of 1.00%. In June 2022, we
entered into a second amendment with TCW to further amend our Term Facility to consent to modifications in our borrowing
capacity under the ABL Facility as described below, and to adjust certain pricing and prepayment terms, among other things.
The second amendment also modified the interest index whereas SOFR will be used to calculate interest rather than LIBOR. The
effective interest rate was increased to SOFR plus 7.50% through November 2022. In November 2022, the Term Facility was
amended to increase the effective interest rate to LIBOR plus 7.00% until June 2023 and to provide certain EBITDA adjustments
with response to financial covenants, among other things.
Our Term Facility is collateralized by a second-lien on accounts receivable, inventory, cash and related assets and a first-lien on
substantially all other assets. The Term Facility matures on March 15, 2026.
On March 15, 2021, we also entered into a senior secured asset-based credit facility ("ABL Facility") with Bank of America,
N.A. ("Bank of America") as agent, for the lenders party thereto. The ABL Facility provides a new senior secured asset-based
revolving credit facility up to a principal amount of $150 million, which includes a sub-limit for the issuance of letters of credit
up to $5 million. The ABL Facility may be increased up to an additional $50 million at the Borrowers’ request and the Lenders’
option, subject to customary conditions. In December of 2021, we amended our ABL Facility to temporarily increase our
borrowing capacity from $150 million to $175 million until June 2022, at which time our borrowing capacity will go down to
$165 million. In June 2022, we further amended our ABL Facility to temporarily increase our borrowing capacity by $25 million
to $200 million through December 31, 2022, which thereafter will be reduced to $175 million. In November 2022, we entered
into a third amendment to our ABL Facility to provide certain EBITDA adjustments with respect to our financial covenants. The
ABL Facility includes a separate first in, last out (FILO) tranche, which allows the Company to borrow at higher advance rates
on eligible accounts receivables and inventory balances. As of December 31, 2022, we had borrowing capacity of $56.2 million.
Interest expense was approximately $18.3 million, $10.6 million and $0.2 million, respectively for the years ended December
31, 2022, 2021 and 2020.
The ABL Facility is collateralized by first-lien on accounts receivable, inventory, cash and related assets and a second-lien on
substantially all other assets. The ABL Facility matures on March 15, 2026. Interest on the ABL Facility is based on the amount
available to be borrowed as set forth on the following chart:
Revolver Pricing Level (1)
I
II
III
Average Availability as a
Percentage of Commitments
> 66.7%
>33.3% and < or equal to 66.7%
< or equal to 33.3%
Base Rate
0.00%
0.00%
0.25%
SOFR Loan
1.25%
1.50%
1.75%
Term
Base Rate for
FILO
Term SOFR
FILO Loans
0.50 %
0.50 %
0.75 %
1.75 %
2.00 %
2.25 %
(1) Tier II applied until June 30, 2021.
45
In connection with the Term Facility and ABL Facility, we had to pay certain fees that were capitalized and will be amortized
over the life of each respective loan. In addition, the ABL Facility requires us to pay an annual collateral management fee in the
amount of $75,000 due on each anniversary of the ABL Facility issuance date, until it matures.
Current and long-term debt consisted of the following:
($ in thousands)
Term Facility that matures in 2026 with an effective interest rate of 12.14% and 8.00%
December 31, December 31,
2022
2021
as of December 31, 2022 and December 31, 2021, respectively
$
116,332 $
127,563
ABL Facility that matures in 2026:
LIBOR borrowings with an effective interest rate of 5.47% and 1.88% as of December
31, 2022 and December 31, 2021, respectively
Prime borrowings with an effective interest rate of 7.27% and 3.50% as of December 31,
2022 and December 31, 2021, respectively
Total debt
Less: Unamortized debt issuance costs
Total debt, net of debt issuance costs
Less: Debt maturing within one year
Long-term debt
Credit Facility Covenants
$
140,000
140,000
3,301
259,633
(2,737)
256,896
(3,250)
253,646 $
6,072
273,635
(3,591)
270,044
(3,250)
266,794
The Term Facility contains restrictive covenants which require us to maintain a maximum total leverage ratio and a minimum
fixed charge coverage ratio, as defined in the agreement. We are in compliance with all Term Facility covenants as of December
31, 2022.
Our ABL Facility contains a restrictive covenant which requires us to maintain a fixed charge coverage ratio upon a triggering
event taking place (as defined in the ABL Facility agreement). During the twelve months ended December 31, 2022, there were
no triggering events and the covenant was not in effect.
Huntington Credit Facility
The Huntington credit facility was terminated in March 2021 and was replaced by the ABL Facility. We had no outstanding
borrowings against Huntington Credit Facility at fiscal year ending December 31, 2021.
10. LEASES
The operating ROU asset and operating lease liabilities as of December 31, 2022 and December 31, 2021 were as follows:
($ in thousands)
Assets:
December 31, December 31,
2022
2021
Financial Statement Line Item
Operating ROU Assets
$
11,014 $
11,428 Leased assets
Liabilities:
Current
Operating
Noncurrent
Operating
Total leased liabilities
$
$
3,071 $
2,985 Other accrued expenses
8,216
11,287 $
8,809 Long-term lease
11,794
46
Maturity of our operating lease liabilities are as follows:
($ in thousands)
2023
2024
2025
2026
2027
Total lease payments
Less: Interest
Present value of lease liabilities
Operating
Leases
$
$
3,240
3,076
2,901
2,819
2,235
14,271
(2,984)
11,287
For the twelve months ended December 31, 2022 and December 31, 2021 the weighted average remaining lease term and discount
rate were as follows:
Weighted-average remaining lease term (years)
Operating leases
Weighted-average discount rate
Operating leases
December 31, December 31,
2022
2.8
2021
2.8
1.4%
1.7%
For the twelve months ended December 31, 2022, December 31, 2021 and December 31, 2020 the supplemental cash flow
information was as follows:
($ in thousands)
Cash paid for amounts included in the measurement of lease liabilities
$
Operating cash flows from operating leases
December 31, December 31, December 31,
2021
2020
2022
1,492 $
1,230 $
711
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
2,786 $
13,186 $
481
The breakdown of rent expense for our operating leases for the twelve months ended December 31, 2022 and December 31,
2021 were as follows:
Twelve Months Ended
December 31, December 31, December 31, Financial Statement
($ in thousands)
Operating lease expenses - Manufacturing &
Sourcing (1)
Operating lease expenses (1)
Total lease expenses
$
$
2022
2021
2020
Line Item
784 $
4,595
5,379 $
813 $
1,417
2,230 $
678 Cost of goods sold
433 Operating expenses
1,111
(1) Includes short-term lease expenses of approximately $2,166,000, $1,310,000 and $103,000 for the twelve months ended
December 31, 2022, December 31, 2021 and December 31, 2020, respectively.
47
11. BENEFIT PLAN
We sponsor a 401(k) savings plan for eligible employees. We provide a contribution of 3% of applicable salary to the plan for
all employees with greater than six months of service. Additionally, we match eligible employee contributions at a rate of 0.25%,
per one percent of applicable salary contributed to the plan by the employee. This matching contribution will be made by us up
to a maximum of 1% of the employee’s applicable salary for all qualified employees.
Our approximate contributions to the 401(k) Plan were as follows:
($ in thousands)
401(k) plan sponsor contributions
Deferred Compensation Plans
2022
2021
2020
$
1,798 $
1,311 $
961
The Executive Deferred Compensation Plan, which became effective January 1, 2019, is an unfunded non-qualified deferred
compensation plan in which certain executives are eligible to participate.
Under the Executive Deferred Compensation Plan, participants may elect to defer up to 75% of their base compensation and up
to 100% of their bonuses, commissions, and other compensation. The deferred amounts are paid in accordance with each
participant’s elections made on or before December 31 of the prior year. In addition to elective deferrals, the Executive Deferred
Compensation Plan permits the Company to make discretionary contributions to eligible participants, provided that any
participant who is employed on the last day of a plan year will receive a Company contribution equal to no less than 3% of the
participant’s base compensation, bonus earned, and non-equity incentive plan compensation in the plan year. Company
contributions will vest in accordance with the vesting schedule determined by the Committee, except in the event of the
participant’s death, disability or retirement, in which case the contributions will vest 100% upon such event. Participants may
elect to receive payment in a lump sum cash payment or, in the event of the participant’s retirement, in annual installments for a
period of up to ten years. In the event of a participant’s termination of employment, deferred amounts will generally be paid
within 60 days following the later of the date (i) of such termination or (ii) the participant attains age 60, except where such
termination is due to such participant’s death, in which case deferred amounts will be paid to such participant’s beneficiary within
30 days of confirmation of the participant’s death.
The deferrals are held in a separate trust, which has been established by the Company to administer the Executive Deferred
Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company
becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a "Rabbi Trust"). The assets
held by the trust were approximately $335,000 and $311,000 as of December 31, 2022 and December 31, 2021, respectively,
and are classified as trading securities within other assets in the accompanying consolidated balance sheets. The liabilities by the
trust were approximately $120,000 and $119,000, as of December 31, 2022 and December 31, 2021, respectively, and are
classified within deferred liabilities in the accompanying consolidated balance sheets. Changes in the deferred compensation
assets and liabilities are charged to operating expenses in the accompanying consolidated statements of operations.
In 2020, we entered into a second deferred compensation plan (the "Dominican Plan"), which became effective August 18, 2020
and is a non-qualified deferred compensation plan for certain key employees at our Dominican Republic manufacturing facility.
Under the Dominican Plan, key employees will receive a set dollar amount, as defined in the agreement, at the later of five years
following the effective date of the agreement or upon the employee attaining the age of 65. Payments are due within 30 days of
the employee's retirement. If the employee terminates their employment, for any reason, prior to their retirement and five years
after the effective date of the agreement, the employee is not eligible to receive a payout. The funds are accrued based on service
and are not held in an investment or trust account. The total liabilities held under the Dominican Plan were
approximately $187,000 and $107,000 as of December 31, 2022 and December 31, 2021, respectively, and are classified within
deferred liabilities in the accompanying consolidated balance sheets.
48
12. TAXES
We account for income taxes in accordance with the accounting standard for "Income Taxes," which requires an asset and liability
approach to financial accounting and reporting for income taxes. Accordingly, deferred income taxes have been provided for the
temporary differences between the financial reporting and the income tax basis of the Company’s assets and liabilities by
applying enacted statutory tax rates applicable to future years to the basis differences.
A breakdown of our income tax expense (benefit) for the years ended December 31 is as follows:
($ in thousands)
Federal:
Current
Deferred
Total Federal
State & local:
Current
Deferred
Total State & local
Foreign
Current
Deferred
Total Foreign
Total
2022
2021
2020
$
5,993 $
(1,417)
4,576
1,554 $
1,729
3,283
4,942
67
5,009
1,415
(247)
1,168
182
(623)
(441)
833
(176)
657
907
(37)
870
793
97
890
102
-
102
$
5,303 $
4,810 $
6,001
A reconciliation of recorded Federal income tax expense to the expected expense computed by applying the applicable Federal
statutory rate for all periods to income before income taxes follows:
($ in thousands)
Expected expense at statutory rate
Year Ended December 31,
2021
2020
2022
$
5,414 $
5,327 $
5,662
Increase (decrease) in income taxes resulting from:
Exempt income from Dominican Republic operations due to tax
holiday
Tax Rate Differential effect of Foreign Operations
Tax on repatriated earnings from Dominican Republic operations
State and local income taxes
Foreign Tax Credit
Meals and entertainment
Nondeductible penalties
Provision to return filing adjustments and other
Total
$
(632)
160
316
734
(348)
5
6
(352)
5,303 $
(1,238)
45
941
222
(547)
2
3
55
4,810 $
(942)
-
438
766
(30)
27
20
60
6,001
49
Deferred income taxes recorded in the Consolidated Balance Sheets at December 31, 2022 and 2021 consisted of the following:
($ in thousands)
Deferred tax assets:
Asset valuation allowances and accrued expenses
Inventories
State and local income taxes
Pension and deferred compensation
Net operating losses
163(J) Interest limitation
Lease asset
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Intangible assets
Other assets
Tollgate tax on Lifestyle earnings
State and local income taxes
Lease Liability
Total deferred tax liabilities
Net deferred tax liability
$
2022
2021
2,257 $
3,300
293
42
794
1,077
2,608
10,371
4,490
10,262
793
228
59
2,545
18,377
239
1,564
346
38
302
-
2,696
5,185
4,144
7,179
317
228
1,001
2,609
15,478
$
8,006 $
10,293
We have provided Puerto Rico tollgate taxes on approximately $3.7 million of accumulated undistributed earnings of Lifestyle
prior to the fiscal year ended June 30, 1994, that would be payable if such earnings were repatriated to the United States. In 2001,
we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994; thus no other provision for
tollgate tax has been made on earnings after that date. If we repatriate the earnings from Lifestyle, $227,563 of tollgate tax would
be due as of December 31, 2022.
We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows:
Taxing Authority Jurisdiction:
U.S. Federal
Various U.S. States
Puerto Rico (U.S. Territory)
Canada
China
Mexico
United Kingdom
Australia
Earliest Exam
Year
2019
2018
2017
2017
2019
2021
2021
2021
Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December
31, 2022, no such expenses were recognized during the year. We do not believe there will be any material changes in our uncertain
tax positions over the next 12 months.
Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain
tax positions recognized in an enterprise’s financial statements. Under this guidance, income tax positions must meet a more-
likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard. We did not have
any unrecognized tax benefits and there was no effect on our financial condition or results of operations.
50
13. SHAREHOLDERS' EQUITY
Repurchase of Common Stock
A summary of our previously authorized share repurchase plans, both of which are expired by their terms, is as follows:
($ in thousands, except share and per share amounts)
Maximum authorized share repurchase amount (1)
Date of plan's authorization by the Board
Funding source
Number of shares repurchased under the plan (shares)
$
Amount paid for shares repurchased
Weighted average price paid per share
$
Remaining amount of shares authorized to be purchased under the plan (in dollars) $
$
7,500 $
March 2021
7,500
February 2020
Working capital Working capital
129,095
-
2,938
- $
22.76
- $
4,562
7,500 $
2021
2020
(1) Common shares can be purchased in the open market or privately negotiated transactions over the next twelve months
following the date of plan authorization.
Our previous shareholder repurchase program terminated expired on March 4, 2022. There has not been an announcement for a
new repurchase program since the expiration prior program expired in March 2022.
Preferred Shares
The Company has authorized 250,000 shares of voting preferred stock with no par value. No shares are issued or outstanding.
Also, the Company has authorized 250,000 shares of non-voting preferred stock with no par value. Of these, 125,000 shares have
been designated Series A non-voting convertible preferred stock with a stated value of $0.06 per share, of which no shares are
issued or outstanding at December 31, 2022 and 2021, respectively.
14. SHARE-BASED COMPENSATION
On May 7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan and in May 2021 this plan was amended as our
shareholders authorized an additional 600,000 shares (as amended, the "2014 Plan"). The 2014 Plan includes 1,100,000 of our
common shares that may be granted under various types of awards as described in the 2014 Plan. As of December 31, 2022, we
were authorized to issue 526,106 shares under the 2014 Plan.
On January 24, 2021, we adopted the 2021 Inducement Option Plan (the "2021 Plan") pursuant to which 25,000 non-
qualified stock options were granted to seven key employees acquired with the Acquisition. The 2021 Plan did not require
shareholder approval under Nasdaq Listing Rule 5635(c). As of December 31, 2022, there were no remaining shares available to
grant under the 2021 Plan.
Stock Options
The following table presents the weighted average assumptions used in the option-pricing model at the grant date for options
granted during the years ended December 31:
Assumptions:
Risk-free interest rate
Expected dividend yield
Expected volatility of Rocky Brand's common stock
Expected option term (years)
Weighted-average grant date fair value per share
2022
2021
0.82%
2.15%
54.70%
5.1
12.85 $
0.32%
1.18%
51.87%
5.6
12.16
$
51
For the years ended December 31, 2022 and 2021, we recognized share-based compensation expense and the corresponding tax
benefit as follows:
($ in thousands)
Share-based compensation expense
Tax benefit
2022
2021
$
1,230 $
221
1,265
192
The following summarizes stock option activity for the year ended December 31, 2022:
($ amounts are per share)
Options outstanding at January 1, 2022
Issued
Exercised
Forfeited or expired
Options outstanding at December 31, 2022
Expected to vest
Exercisable at December 31, 2022
Weighted
Average
Weighted
Average
Remaining
Aggregate
Shares
Exercise Price Actual Term Intrinsic Value
328,000 $
85,500
(26,050)
(46,014)
341,436 $
118,736 $
222,700 $
26.94
39.80
17.69
41.71
28.87
31.70
27.37
5.1 $
7.7 $
3.7 $
363,595
34,364
329,231
In the first quarter of 2022, our officers and certain employees were granted 54,000 options. The plans generally provided for
grants with the exercise price equal to fair value on the date of grant, graduated vesting periods of up to 5 years, and lives not
exceeding 10 years. For the years ended December 31, 2022, 2021, and 2020, cash received for the exercise of stock options was
approximately $461,000, $825,000, and $136,000 respectively.
In the first quarter of 2022, Board of Director members were granted 31,500 stock options that vest over a year and will expire
in 5 years.
Restricted Stock Units
The following table summarizes the status of the Company's restricted stock units and activity as of December 31, 2022:
($ amounts are per share)
Nonvested at January 1, 2022
Granted
Vested
Forfeited
Nonvested at December 31, 2022
Restricted Stock Units
Weighted-Average
Grant Date
Fair Value Per
Share
Quantity
- $
1,954
-
-
1,954 $
-
25.58
-
-
25.58
As of December 31, 2022, the total unrecognized compensation cost related to non-vested stock options and restricted stock units
was approximately $148,000 with a weighted-average expense recognition period of 3.8 years.
During the years ended December 31, 2022 and 2021, and 2020 we issued 10,762 shares, 6,868 shares and 10,456 shares of
common stock to members of our Board of Directors, respectively.
15. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income applicable to common shareholders by the weighted
average number of common shares outstanding during each period. The diluted earnings per share computation includes common
share equivalents, when dilutive.
52
A reconciliation of the shares used in the basic and diluted income per common share computation for the years ended
December 31, as follows:
(shares in thousands)
Basic - weighted average shares outstanding
Dilutive stock options
Diluted - weighted average shares outstanding
Anti-dilutive securities
16. REVENUE
Nature of Performance Obligations
Twelve Months Ended
December 31,
2021
2020
2022
7,317
52
7,369
162
7,283
126
7,409
25
7,304
33
7,337
149
Our products are distributed through three distinct channels, which represent our business segments: Wholesale, Retail, and
Contract Manufacturing. In our Wholesale business, we distribute our products through a wide range of distribution channels
representing over 10,000 retail store locations in the U.S., Canada, and internationally, mainly Europe. Our Wholesale channels
vary by product line and include sporting goods stores, outdoor specialty stores, online retailers, independent retailers, mass
merchants, retail uniform stores, and specialty safety shoe stores. Our Retail business includes direct sales of our products to
consumers through our e-commerce websites, our Rocky Outdoor Gear Store, and Lehigh business. We also sell footwear under
the Rocky Brands label to the U.S. Military.
Significant Accounting Policies and Judgements
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; this generally occurs upon
shipment of our product to our customer, which is when the transfer of control of our product passes to the customer. The duration
of our arrangements with our customers are typically one year or less. Revenue is measured as the amount of consideration we
expect to receive in exchange for the transfer of our products at a point in time and consists of either fixed or variable
consideration or a combination of both.
Revenues from sales are recorded at the net sales price, which includes estimates of variable consideration for which reserves
are established. Components of variable consideration include prompt payment discounts, volume rebates, and product returns.
These reserves, as detailed below, are based on the amounts earned or to be claimed on the related sales and are classified as
reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a
party other than a customer).
The amount of variable consideration which is included in the transaction price may be constrained and is included in the net
sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized
under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance
with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates
as of December 31, 2022. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in
the future vary from our estimates, we will adjust these estimates, which would affect net revenue and earnings in the period
such variances become known.
When a customer has a right to a prompt payment discount, we estimate the likelihood that the customer will earn the discount
using historical data and adjust our estimate when the estimate of the likelihood that a customer will earn the discount changes
or the consideration becomes fixed, whichever occurs earlier. The estimated amount of variable consideration is recognized as a
credit to trade receivables and a reduction in revenue until the uncertainty of the variable consideration is alleviated. Because
most of our customers have payment terms less than six months there is not a significant financing component in our contracts
with customers.
When a customer is offered a rebate on purchases retroactively, this is accounted for as variable consideration because the
consideration for the current and past purchases is not fixed until it is known if the discount is earned. We estimate the expected
discount the customer will earn at contract inception using historical data and projections and update our estimates when
projections materially change or consideration becomes fixed. The estimated rebate is recognized as a credit to trade receivables
and offset against revenue until the rebate is earned or the earning period has lapsed.
53
When a right of return is part of the arrangement with the customer, we estimate the expected returns based on an analysis using
historical data. We adjust our estimate either when the most likely amount of consideration we expect to receive changes or when
the consideration becomes fixed, whichever occurs earlier. Please see Note 1 and Note 5 for additional information.
Trade receivables represent our right to unconditional payment that only relies on the passage of time.
Contract receivables represent contractual minimum payments required under non-cancellable contracts with the U.S. Military
and other customers with a duration of one year or less.
Contract liabilities are performance obligations that we expect to satisfy or relieve within the next twelve months, advance
consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services
under non-cancellable contracts before the transfer of goods or services to the customer has occurred. Our contract liability
represents unconditional obligations to provide goods under non-cancellable contracts with the U.S. Military and other customers.
Items considered immaterial within the context of the contract are recognized as an expense.
Taxes assessed by a governmental authority that are both imposed on, and concurrent with, a specific revenue producing
transaction, that are collected from customers, are excluded from revenue.
Costs associated with our manufacturer’s warranty continue to be recognized as expense when the products are sold in accordance
with guidance surrounding product warranties.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are
accounted for as a fulfillment cost and are in included in operating expenses. This treatment is consistent with how we accounted
for these costs in prior periods.
Costs associated with obtaining a contract are expensed as incurred in accordance with the practical expedient in ASC 340-40 in
instances where the amortization period is one year or less. We anticipate substantially all costs incurred to obtain a contract
would be subject to this practical expedient.
Contract Liabilities
The following table provides information about contract liabilities from contracts with our customers.
($ in thousands)
Contract liabilities
December 31, December 31,
2022
2021
$
- $
1,062
Significant changes in the contract liabilities balance during the period are as follows:
($ in thousands)
Balance, December 31, 2021
Non-cancelable contracts with customers entered into during the period
Revenue recognized related to non-cancelable contracts with customers during the period
Balance, December 31, 2022
Disaggregation of Revenue
Contract
liabilities
$
$
1,062
-
(1,062)
-
All revenues are recognized at a point in time when control of our products pass to the customer at point of shipment. Because
all revenues are recognized at a point in time and are disaggregated by channel, our segment disclosures are consistent with ASC
606 disaggregation requirements. See Note 18 for segment disclosures.
54
17. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow for the years ended December 31, as follows:
($ in thousands)
Interest paid
Federal, state, and local income taxes paid, net
Change in contract receivables, net
Change in contract liabilities, net
Property, plant, and equipment purchases in accounts payable
18. SEGMENT INFORMATION
Twelve Months Ended
December 31,
2021
2020
2022
$
$
$
$
$
17,501 $
7,930 $
151
1,930 $
8,638 $
4,669
1,062 $
4,108 $
(424)
(1,062) $
(4,520) $
836
976 $
2,191 $
2,316
Reportable Segments - We have identified three reportable segments: Wholesale, Retail and Contract Manufacturing.
Wholesale. In our Wholesale segment, our products are offered in over 10,000 retail locations representing a wide range of
distribution channels in the U.S., Canada, U.K. and other international markets, mainly Europe. These distribution channels vary
by product line and target market and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores,
catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers.
Retail. In our Retail segment, we market directly to consumers through our Lehigh business-to-business including direct sales
and through our CustomFit websites, consumer e-commerce websites, third-party marketplaces, and our Rocky Outdoor
Gear Store. Through our outdoor gear store, we generally sell first quality or discontinued products in addition to a limited
amount of factory damaged goods, which typically carry lower gross margins.
Contract Manufacturing. In our Contract Manufacturing segment, we include sales to the U.S. Military, private label sales and
any sales to customers in which we are contracted to manufacture or source a specific footwear product for a customer.
The following is a summary of segment results for the Wholesale, Retail, and Contract Manufacturing segments for the years
ended December 31:
($ in thousands)
NET SALES:
Wholesale
Retail
Contract Manufacturing
Total Net Sales
GROSS MARGIN:
Wholesale
Retail
Contract Manufacturing
Total Gross Margin
Twelve Months Ended
December 31,
2021
2022
2020
$
$
$
$
484,779 $
115,354
15,342
615,475 $
391,070 $
94,658
28,499
514,227 $
165,059 $
57,817
2,343
225,219 $
140,166 $
47,792
6,578
194,536 $
185,554
72,877
18,878
277,309
66,336
34,283
4,116
104,735
Segment asset information is not prepared or used to assess segment performance.
55
Product Group Information - The following is supplemental information on net sales by product group for the years ended
December 31:
($ in thousands)
Work footwear
Outdoor footwear
Western
Duty and commercial military
footwear
Military footwear
Other
Apparel
$
2022
256,162
183,121
108,697
% of Sales
41.6% $
29.8
17.6
2021
280,235
76,031
87,425
% of Sales
54.5% $
14.8
17.0
2020
126,268
21,074
61,127
% of Sales
45.5%
7.6
22.0
46,177
15,342
3,581
2,395
615,475
$
7.5
2.5
0.6
0.4
100.0% $
39,715
22,767
5,149
2,905
514,227
7.7
4.4
1.0
0.6
100.0% $
41,005
18,878
5,575
3,382
277,309
14.8
6.8
2.0
1.2
100.0%
Net sales to foreign countries represented approximately 6.2% of net sales in 2022, 6.9% of net sales in 2021 and 0.8% of net
sales in 2020.
The net book value of fixed assets located outside of the U.S. totaled $12.6 million at December 31, 2022, of which
approximately $4.6 million resides in the Dominican Republic and approximately $8.0 million resides in China.
19. RESTRUCTURING CHARGES
In 2022, we completed a cost savings review aimed at operating efficiencies to better position us for profitable growth. Following
the integration of the Acquired Brands, we identified a number of operational synergies and cost savings opportunities, including
a reduction in workforce. In addition to the accrued expenses below, we incurred approximately $1.0 million in restructuring
costs that are included in operating expenses in the accompanying consolidated statements of operations for the year ended
December 31, 2022.
For the year ended December 31, 2022, the following activity was recorded:
Employee
Severance,
Benefits and
Related Costs
-
1,201
(820)
381
$
$
($ in thousands)
Accrued expenses, January 1, 2022
Restructuring charges
Cash payments
Accrued expenses, December 31, 2022
56
20. COMMITMENTS AND CONTINGENCIES
We are, from time to time, a party to litigation which arises in the normal course of business. Although the ultimate resolution
of pending proceedings cannot be determined, in the opinion of management, the resolution of such proceedings in the aggregate
will not have a material adverse effect on our financial position, results of operations, or liquidity.
Litigation
We are currently party to litigation with a manufacturing supplier of the Acquired Brands. While it is not possible to predict the
outcome of this litigation with certainty, we do not anticipate the resolution will have a material, adverse impact on our financial
position. We believe that the likelihood of the resolution being materially adverse to our financial statements is remote and as
such have not recorded any contingent liabilities within the accompanying Consolidated Financial Statements. In addition, we
have not recorded any potential favorable resolution to the litigation due in accordance with ASC 450-30, Gain Contingencies.
Gain Contingency
In June 2022, we became aware of a misclassification of Harmonized Tariff Schedule (HTS) codes filed with the U.S. Customs
and Border Protection (U.S. Customs) on certain products imported in the U.S. associated with the Acquired Brands during 2021
and 2022. As a result of the misclassification of HTS codes we have paid duties in excess of the required amount. We are in the
process of filing multiple post summary corrections with U.S. customs to see refunds of duties paid in excess of the correct HTS
codes. As of December 31, 2022, we have the potential to recover approximately $7.7 million from overpaid duties of which we
have received $3.2 million in refunds. All refunds received were and will be recognized as a reduction to the cost of goods sold
as received. We are accounting for these post summary corrections as a gain contingency, and as such have not recorded these
potential refunds within the accompanying unaudited condensed consolidated balance sheet due to uncertainty of collection. Any
refunds received will be recognized as a reduction to the cost of goods sold when and if the refunds are received.
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our management carried out an evaluation, with the participation of our
principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based upon
that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this report. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
promulgated under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting. We have made the necessary and appropriate updates to our
internal controls as it relates to financial reporting over our Acquired Brands, none of which were material.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Under the supervision and with the participation of our principal executive officer and principal
financial officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) as of December 31, 2022. The scope of management’s assessment of the effectiveness of
internal control over financial reporting includes all of our businesses. Based upon that evaluation under the framework in Internal
Control – Integrated Framework (2013), our management concluded that our internal control over financial reporting was
effective as of December 31, 2022. Schneider Downs & Co., Inc., our independent registered public accounting firm has issued
an attestation report on the effectiveness of our internal controls over financial reporting which is included within this report.
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Rocky Brands, Inc. and Subsidiaries
Nelsonville, Ohio
Opinion on Internal Control over Financial Reporting
We have audited Rocky Brands, Inc. and Subsidiaries’ (the Company’s) internal control over financial reporting as of December
31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated
Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the balance sheets and the related statements of income, comprehensive income, stockholders’ equity, and cash flows
of the Company, and our report dated March 10, 2023 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Schneider Downs & Co., Inc.
Columbus, Ohio
March 10, 2023
59
ITEM 9B. OTHER INFORMATION.
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item is included under the captions "ELECTION OF DIRECTORS," "INFORMATION
CONCERNING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE," "INFORMATION CONCERNING
EXECUTIVE OFFICERS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the
Company's Proxy Statement for the 2023 Annual Meeting of Shareholders (the "Company's Proxy Statement") to be held on
June 7, 2023, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions "EXECUTIVE COMPENSATION" and "REPORT OF
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS" and "COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION" in the Company's Proxy Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS.
The information required by this item is included under the caption "PRINCIPAL HOLDERS OF VOTING SECURITIES -
OWNERSHIP OF COMMON STOCK BY MANAGEMENT," "- OWNERSHIP OF COMMON STOCK BY PRINCIPAL
SHAREHOLDERS," and "EQUITY COMPENSATION PLAN INFORMATION," in the Company's Proxy Statement, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by this item is included under the caption "INFORMATION CONCERNING THE BOARD OF
DIRECTORS AND CORPORATE GOVERNANCE" and "TRANSACTIONS WITH RELATED PERSONS" in the Company's
Proxy Statement, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is included under the caption "FEES OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM" in the Company’s Proxy Statement, and is incorporated herein by reference.
60
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
PART IV
(1) The following Financial Statements are included in this Annual Report on Form 10-K in Item 8:
● Report of Independent Registered Public Accounting Firm
● Consolidated Balance Sheets as of December 31, 2022 and 2021
● Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
● Consolidated Statements of Shareholders' Equity for the years ended December 31, 2022, 2021 and 2020
● Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
● Notes to Consolidated Financial Statements
(2) The following financial statement schedule for the years ended December 31, 2022 and 2021 and is included in this
Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements
contained in the Annual Report. See Appendix A.
● Schedule II -- Consolidated Valuation and Qualifying Accounts.
Schedules not listed above are omitted because of the absence of the conditions under which they are required or
because the required information is included in the Consolidated Financial Statements or the notes thereto.
(3) Exhibits:
Exhibit
Number
2.1***
2.2***
3.1
3.2
3.3 (P)
4.1 (P)
Description
Purchase Agreement, dated January 24, 2021, by and among Honeywell Safety Products USA, Inc., North
Safety Products Limited, Honeywell Safety Products (UK) Limited, North Safety de Mexicali S de R.L. de
C.V., Honeywell (China) Co. Ltd. and Rocky Brands, Inc. (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K dated January 24, 2021, and filed on January 26, 2021).
Letter Agreement, dated March 14, 2021, by and among Honeywell Safety Products USA, Inc., North Safety
Products Limited, Honeywell Safety Products (IK) Limited, North Safety de Mexicali S de R.L. de C.V,
Honeywell (China) Co. Ltd. and Rocky Brands, Inc. (incorporated by reference to Exhibit 2.2 to the Company's
Quarterly Report on form 10-Q for the fiscal quarter ended March 31, 2021).
Second Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006).
Amendment to Second Amended and Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2006).
Amended and Restated Code of Regulations of the Company (incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-1, registration number 33-56118 (the "Registration Statement")).
Form of Stock Certificate for the Company (incorporated by reference to Exhibit 4.1 to the Registration
Statement).
61
4.2
Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh, Twelfth, and Thirteenth of the Company's Second
Amended and Restated Articles of Incorporation (see Exhibit 3.1).
4.3 (P)
Articles I and II of the Company's Code of Regulations (see Exhibit 3.3).
4.4
10.01
Description of Common Stock (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2020).
Form of Indemnification Agreement entered into between the Company and its directors and executive officers.
(incorporated by reference to Exhibit 10.01 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2018)
10.02*
Schedule of directors and executive officers who have entered into the form of Indemnification Agreement.
10.03
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
Amended and Restated Lease Agreement, dated March 1, 2002, between Rocky Shoes & Boots Co. and William
Brooks Real Estate Company regarding Nelsonville factory (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).
Lease Contract dated December 16, 1999, between Lifestyle Footwear, Inc. and The Puerto Rico Industrial
Development Company (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2004).
Amended and Restated 2014 Omnibus Incentive Plan (incorporated by reference to the Company’s Definitive
Proxy Statement for the 2021 Annual Meeting of Shareholders, held on May 26, 2021, filed on April 21, 2021).
Renewal of Lease Contract, dated June 24, 2004, between Five Star Enterprises Ltd. and the Dominican
Republic Corporation for Industrial Development (incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2004).
Second Amendment to Lease Agreement, dated as of July 26, 2004, between Rocky Shoes & Boots, Inc. and
the William Brooks Real Estate Company (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004).
Company’s Incentive Compensation Plan (incorporated by reference to the Company’s Definitive Proxy
Statement for the 2017 Annual Meeting of Shareholders).
Form of Option Award Agreement under the Amended and Restated 2014 Omnibus Incentive Plan (incorporated
by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2014).
Form of Restricted Stock Unit Award Agreement under the Amended and Restated 2014 Omnibus Incentive
Plan (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2014).
Form of Performance Stock Unit Award Agreement under the Amended and Restated Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2014).
Employment Agreement, dated January 1, 2019, by and between the Company and Jason Brooks (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2018, filed
January 7, 2019).
Employment Agreement, dated January 1, 2019, by and between the Company and Thomas Robertson
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 31,
2018, filed January 7, 2019).
62
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
21*
23*
24*
Employment Agreement, dated January 1, 2019, by and between the Company and David Dixon (incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 31, 2018, filed
January 7, 2019).
Employment Agreement, dated January 1, 2019, by and between the Company and Richard Simms
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated December 31,
2018, filed January 7, 2019).
Employment Agreement, dated January 1, 2019, by and between
the Company and Byron
Wortham (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated
December 31, 2018, filed January 7, 2019).
ABL Loan and Security Agreement dated March 15, 2021 between the Company and Bank of America, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 15, 2021
and filed on March 16, 2021).
Term Credit Loan and Security Agreement dated March 15, 2021 between the Company and The Direct Lending
Group of TCW Asset Management Company, LLC. (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated March 15, 2021 and filed on March 16, 2021).
First Amendment to ABL Loan and Security Agreement, dated December 10, 2021, between the Company,
Bank of America, N.A. and the other lenders party thereto.
First Amendment to Term Loan and Security Agreement, dated December 10, 2021, between the Company,
TCW Asset Management Company LLC and the other lenders party thereto.
Second Amendment to ABL Loan and Security Agreement, dated June 8, 2022, between the Company, Bank
of America, N.A. and the other lenders party thereto.
Second Amendment to Term Loan and Security Agreement, dated June 8, 2022, between the Company, TCW
Asset Management Company, LC and the other leaders party thereto.
Third Amendment to ABL Loan and Security Agreement, dated November 2, 2022, between the Company,
Bank of America, N.A. and the other lenders party thereto.
Third Amendment to Term Loan and Security Agreement, dated November 2, 2022, between the Company,
TCW Asset Management Company, LLC and the other lenders party thereto.
Subsidiaries of the Company.
Independent Registered Public Accounting Firm’s Consent of Schneider Downs & Co., Inc.
Power of Attorney.
31.1*
Rule 13a-14(a) Certification of Principal Executive Officer.
31.2*
Rule 13a-14(a) Certification of Principal Financial Officer.
32**
Section 1350 Certification of Principal Executive Officer/Principal Financial Officer.
63
101*
Attached as Exhibits 101 to this report are the following financial statements from the Company’s Annual Report
on Form 10-K for the year ended December 31, 2022 formatted in Inline eXtensible iXBRL ("eXtensible
Business Reporting Language"): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of
Operations, (iii) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements.
104*
Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101
* Filed with this Annual Report on Form 10-K.
** Furnished with this Annual Report on Form 10-K.
*** Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes
to furnish copies of any of the omitted schedules or exhibits upon request of the U.S. Securities and Exchange Commission.
(P) Paper Filing.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
64
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 10, 2023
ROCKY BRANDS, INC.
By:
/s/ JASON BROOKS
Jason Brooks, Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on the dates indicated.
Signature
Title
Date
/s/ JASON BROOKS
Jason Brooks
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
March 10, 2023
/s/ THOMAS D. ROBERTSON
Thomas D. Robertson
Executive Vice President, Chief Operating Officer and Treasurer March 10, 2023
(Principal Financial and Accounting Officer)
* CURTIS A. LOVELAND
Curtis A. Loveland
* MIKE BROOKS
Mike Brooks
* MICHAEL L. FINN
Michael L. Finn
*ROBYN R. HAHN
Robyn R. Hahn
* G. COURTNEY HANING
G. Courtney Haning
* WILLIAM L. JORDAN
William L. Jordan
* ROBERT B. MOORE, JR.
Robert B. Moore, Jr.
* DWIGHT E. SMITH
Dwight E. Smith
* TRACIE WINBIGLER
Tracie Winbigler
By: /s/ JASON BROOKS
Jason Brooks, Attorney-in-Fact
Assistant Secretary and Director
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
March 10, 2023
Director
Director
Director
Director
Director
Director
Director
Director
65
Appendix A
ROCKY BRANDS, INC. AND SUBSIDIARIES
Schedule II
Consolidated Valuation and Qualifying Accounts for the Years Ended December 31, 2022, 2021, and 2020
($ in thousands)
Balance at
Beginning of Charged to Costs
Additions
Balance at
End
of Period
3,473
613
242
-
-
298
1,455
2,515
1,818
Description
Period
and Expenses
Deductions
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
VALUATION ALLOWANCE FOR DEFERRED
TAX ASSETS
$
$
$
613 $
242 $
952 $
3,254 $
302 $
452 $
(394) (1) $
69 (1) $
(1,162) (1)$
$
Year ended December 31, 2022
$
Year ended December 31, 2021
Year ended December 31, 2020
$
ALLOWANCE FOR DISCOUNTS AND RETURNS
$
Year ended December 31, 2022
$
Year ended December 31, 2021
$
Year ended December 31, 2020
- $
298 $
372 $
2,515 $
1,818 $
1,480 $
- $
- $
- $
- $
(298) $
(74) $
41,374 $
26,454 $
23,223 $
(42,434) $
(25,757) $
(22,885) $
(1) Amount charged off, net of recoveries
66
This page intentionally left blank
This page intentionally left blank
BOARD OF DIRECTORS
Jason Brooks
Chairman of the Board,
President and Chief Executive Officer
Mike Brooks
Former Chairman and Chief Executive Officer
Michael L. Finn
Chairman, Power Distributors, LLC
President, Chesapeake Realty Company
G. Courtney Haning
Former Chairman and Chief Executive Officer
Peoples National Bancshares, Inc.
Curtis A. Loveland
Partner, Porter, Wright, Morris & Arthur LLP
William L. Jordan
President, Designer Brands Inc.
Robert B. Moore, Jr.
Former CEO, Bhartiya International, Ltd.
Tracie Winbigler
Executive Vice President and
Chief Financial Officer, Amtrack
Robyn R. Hahn
President, Westfield Insurance,
Small Business Division
Dwight Smith
Former President and CEO,
Sophisticated Systems
OFFICERS
Jason Brooks
Chairman of the Board,
President and Chief Executive Officer
Tom Robertson
Chief Operating Officer
Sarah O’Connor
SVP, Chief Financial Officer and Treasurer
Byron Wortham
SVP, Georgia Boot and Durango
Jeremy D. Siegfried
Secretary
Corporate Offices
39 East Canal Street, Nelsonville, Ohio 45764
(740) 753-1951
Independent Registered Public Accounting Firm
Schneider Downs & Co., Inc.
Columbus, Ohio
Legal Counsel
Porter, Wright, Morris & Arthur LLP Columbus, Ohio
Transfer Agent and Registrar
Communications regarding changes of address,
transfer of shares, and lost certificates should be
directed to the company’s stock transfer
and registrar:
Computershare Investor Services
Attn: Shareholder Services
P.O. Box 30170
College Station, TX 77842-3170
(800) 962-4284
www-us.computershare.com/investor/Contact
Stock Listing
NASDAQ Stock Market
Symbol: RCKY
Form 10-K
Copies of the signatures, exhibit index and exhibits
contained therein as filed with the Securities and
Exchange Commission are available without charge
upon written request to:
Tom Robertson
Chief Operating Officer
Rocky Brands, Inc.
39 East Canal Street
Nelsonville, Ohio 45764
Investor Information
Corporate and investor information is available on
the company’s website at www.rockybrands.com